A recent string of lawsuits, regulatory guidance, and market trends have dramatically impacted the types of services that enjoy first dollar coverage under high deductible health plan (HDHP) and health savings account (HSA) offerings. Plan sponsors, third party administrators, and plan service providers should pay special attention to plan designs moving forward to ensure recent events do not ruin HDHP members’ ability to make or receive pre-tax contributions into their HSAs.

As a general rule, an HDHP member loses HSA eligibility if the member receives health care services at no cost to the member before the deductible is met (commonly referred to as the ban on first dollar coverage). However, regulators and lawmakers have enacted numerous exceptions to this general rule, which effectively allow HDHP plans to offer specific types of benefits before members’ deductibles are satisfied.

Important Exceptions and Developments

Recent developments affecting HDHP plans’ first dollar coverage include:

• Preventive Care Services – For many years, preventive care services have enjoyed first dollar HDHP coverage because they are excepted from the general HDHP rule. After the Affordable Care Act (ACA) was enacted, this included ACA-mandated preventive services. Recent court cases and regulatory guidance have put this exception into the forefront. On March 30, 2023, a federal district court judge issued a ruling that struck down some of the ACA’s preventive care provisions, which made it unclear if HDHPs could continue to offer first dollar coverage for such ACA preventive care services moving forward.¹ Two weeks after the judicial decision, the Departments of Labor, Health and Human Services and the Treasury (Tri-Agencies) issued clarifying guidance “strongly urging plans and issuers to continue to cover [preventive care services] without cost sharing.” Further, the Tri-Agencies’ guidance extends first dollar coverage for these ACA preventive care services, despite, and specifically in response to, the recent judicial decision.²
• COVID Tests and Treatments – As a response to the COVID pandemic, regulators provided an exception to the general HDHP rule to allow for first dollar coverage of COVID tests and treatments. With the end of the pandemic, regulators recently reversed course and issued guidance stating COVID tests and treatments are not preventive care services and after 2024 will no longer be eligible for first dollar coverage under an HDHP. Specifically, on June 23, 2023, the IRS issued guidance in connection with the end of the COVID Public Health and National Emergencies to clarify that COVID tests and treatments cannot be covered on a pre-deductible basis in an HDHP for plan years that end on or after December 31, 2024.³ While HDHPs can offer pre-deductible coverage for screenings of certain infectious diseases (Bacteriuria, Chlamydial Infection, Gonorrhea, Hepatitis B Virus Infection, Hepatitis C, Human Immunodeficiency Virus (HIV) Infection, Syphilis, and Tuberculosis Infection), the IRS reasoned that COVID is more like the flu, a common and episodic illness and not an infectious disease, and thus not excepted from the HDHP general rule.
• Telehealth – Telehealth services can be offered at no cost to HDHP members until at least the end of 2024 because the Consolidated Appropriations Act of 2023 (2023 CAA) extended the telehealth HSA safe harbor, as our previous article here summarizes. Specifically, the 2023 CAA’s telehealth HDHP first dollar temporary extension applies to plan years beginning after December 31, 2022, and before January 1, 2025. This telehealth exception was first enacted in response to COVID, as our article here discusses. There is a chance this gets extended again or made permanent in the future, but this would require further legislative action.
• Market Trending Products and Supplemental Benefits
  • Copay Maximizers – PBMs and vendors have begun offering copay maximizer programs to combat increasing specialty drug costs. These programs generally require members to utilize drug manufacturer coupons and may incorporate variable copays into the health plan. While the overall cost savings attributable to these programs can be attractive, if offered to HDHP members and not administered correctly, they can run afoul of the first dollar coverage rule and spoil members’ HSAs. Additionally, the long-term prospect for copay maximizers is uncertain because drug manufacturers have begun litigating against PBMs and vendors who offer these types of programs.
  • Fertility-Related Benefits – Some employers contract with point solution vendors to offer fertility-related benefits such as in-vitro fertilization, egg freezing, gestational carrier services, or other similar fertility preservation services at no cost to the employee. Unless an IRS exception applies or a proper workaround is used, these services may jeopardize an HDHP member’s HSA eligibility.
  • Employee Assistance Programs (EAPs) – EAPs typically provide employees with a set number of visits that generally provide short-term counseling on limited issues such as mental health or substance abuse at no cost to the employee. The IRS created a first dollar exception for EAPs that do not offer “significant benefits in the nature of medical care or treatment”,⁴ meaning that HDHP members can access such EAPs at no cost without ruining their HSA eligibility. Employers looking to enhance their EAP offering should consider the scope of this exception before making any decisions (while keeping in mind that other exceptions might apply, such as the telehealth exception discussed above, or that other permissible workarounds might provide a solution, as discussed below).
  • Wellness Programs – Similar to EAPs, first dollar coverage for benefits offered via a wellness program is allowable if the program doesn’t contain “significant benefits in the nature of medical care or treatment."⁵
  • Onsite Clinics – Similar to EAPs and wellness programs, onsite clinics have a first dollar exception so long as they don’t provide “significant benefits in the nature of medical care or treatment."⁶ Examples of onsite clinic benefits that do not violate the first dollar coverage rule include physicals, immunizations, providing routine pain relievers, treating injuries caused by accidents at the plant, and performing allergy injections.⁷

Potential Plan Service Provider Solutions

As the HDHP landscape evolves, plan service providers still have options to offer innovative products without jeopardizing HDHP members’ HSAs. Specifically, benefits can be designed to fit an exception, such as one of the exceptions discussed above. Alternatively, programs can be structured and administered to preserve HSA eligibility. Such possible workarounds might include (as examples): (1) pre-deductible benefits are provided to HDHP members at fair market value; (2) benefits kick in after a HDHP member satisfies his or her deductible; (3) benefits are integrated with the HDHP carrier or TPA so that the carrier or TPA can apply the HDHP’s standard cost-share when benefits are accessed; or (4) benefits aren’t offered to the employer’s HDHP enrollees.

Takeaway

Recent lawsuits, regulatory guidance, and market trends have significantly altered the HDHP coverage landscape. As employers work to control health care costs, plan service providers bring innovative products to the market, and payors navigate a constantly changing regulatory framework, we anticipate HDHP coverage will continue to evolve. 

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