The Internal Revenue Service (IRS) issued a notice that allows individuals to participate in a health savings account (HSA) while participating in a high deductible health plan (HDHP) that provides coverage for both the testing and treatment of coronavirus (COVID-19), without first satisfying the required deductible.
The March 12 notice, titled Notice 2020-15, means that participants in an HDHP will not be disqualified from making or receiving tax-deductible contributions to any HSA on account of such coverage.
Background on HDHPs and HSAs
For an individual to participate in an HSA, he or she must be covered under an HDHP and may not have health coverage that pays for medical expenses that would be subject to the minimum required deductible for the HDHP. However, an individual may use an HSA to pay for such medical expenses and out-of-pocket healthcare expenses that are not subject to the deductible, like dental and vision care expenses. Certain preventive care expenses may be covered by an HDHP without the need for participants to meet a deductible.
Notice 2020-15 provides that an HDHP may cover medical care services and items associated with testing and treatment for COVID-19 without a deductible—or with a deductible below the minimum annual deductible otherwise required for an HDHP—without jeopardizing participants’ qualification for an HSA. The guidance is strictly limited to COVID-19 testing and treatment and does not otherwise modify the rules applicable to HSAs and HDHPs.
Further, the IRS notes that vaccination costs continue to count as preventive care in section 223(c)(2)(C), and can be paid for by an HDHP.
The guidance aims to remove barriers, such as administrative delays or financial disincentives, that might otherwise impede testing and treatment for COVID-19 for participants in HDHPs. The notice gives flexibility to HDHPs to provide health benefits for testing and treatment of COVID-19 without application of a deductible or cost sharing. Employers and other plan sponsors may choose to offer these COVID-19 health benefits, but they are not compelled to do so by the notice. Thus, an employer or plan sponsor that chooses to offer COVID-19 health benefits without deductible and cost-sharing will need to amend (or confirm) that its HDHP permits this coverage.