High-deductible Health Plans May Cover COVID-19 (Coronavirus) Costs

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Summary

To facilitate the nation’s response to the 2019 Novel Coronavirus (COVID-19), also known as the Coronavirus, the Internal Revenue Service advised in IRS Notice 2020-15 that a high-deductible health plan (HDHP), until further notice, is permitted to pay for COVID-19-related testing and treatment, without jeopardizing its status as an HDHP.  Additionally, contributions to an HDHP participant’s health savings account (HSA) will not be adversely affected if the HDHP covering the participant provides for coverage of costs for COVID-19-related testing or treatment‎.

Notice 2020-15 provides flexibility to HDHPs to provide health benefits for testing and treatment of COVID-19 without application of a deductible or cost sharing.

Background

The Internal Revenue Code (the “Code”) permits “eligible individuals” to deduct contributions to an HSA. One of the requirements to be an eligible individual is that the individual is covered under an HDHP and have no “disqualifying health coverage”.  Generally, an HDHP may not provide benefits for any year until the minimum deductible for that plan year is satisfied. However, the Code permits an HDHP to provide “preventive care” benefits without a deductible or a deductible below the minimum annual deductible otherwise required under the HDHP.  To be a preventive care benefit, the benefit must either be permitted by Statute or be determined to be preventive care in guidance issued by the IRS or the Department of Treasury.

Executive Order 13877 directed the IRS and Treasury to consider ways to expand the use and flexibility of HSAs and HDHPs consistent with the provisions of the Code Section and the appropriate standard for preventive care under the Code.  In furtherance of this directive, IRS Notice 2019-45 expanded the list of preventive care benefits that an HDHP may provide.  IRS Notice 2019-45 contains a limited list of specific low-cost services that, based on documented clinical evidence, will prevent the exacerbation of specific chronic conditions or the development of a secondary condition that would require significantly higher cost treatments.

Relief under IRS Notice 2020-15‎

The relief provided under IRS Notice 2020-15, the IRS explains, is due to “the unprecedented public health emergency posed by COVID-19, and the need to eliminate potential administrative and financial barriers to testing for and treatment of COVID-19”.  Under the relied provided, a health plan that otherwise satisfies the requirements to be an HDHP will not fail to be an HDHP merely because the health plan provides medical care services and items purchased related to testing for and treatment of COVID-19 prior to the satisfaction of the applicable minimum deductible under the HDHP.  As a result, individuals covered by such an HDHP will not fail to be eligible individuals under Code Section 223(c)(1) merely because of the provision of those health benefits for testing and treatment of COVID-19.

The IRS cautioned that the guidance under IRS Notice 2020-15 does not modify previous guidance related to the requirements to be an HDHP in any manner other than with respect to the relief for testing for and treatment of COVID-19.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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