Pension & Benefits News American Benefits Council seeks clarifications to proposed regulations on direct primary care arrangements and HSA eligibility
Tuesday, August 18, 2020

American Benefits Council seeks clarifications to proposed regulations on direct primary care arrangements and HSA eligibility

By Pension and Benefits Editorial Staff

The American Benefits Council has provided comments to the IRS on proposed regulations that address the extent to which payments for various types of medical care arrangements constitute “medical care” under Code Sec. 213, which is relevant to whether those amounts can be reimbursed by account-based health plans, among other things. The Council’s comments focus on direct primary care (DPC) arrangements and the interaction of those arrangements with account-based health plans. The letter notes that a significant impediment to the use of DPC arrangements remains in that Treasury and the IRS have taken the position that coverage by a DPC arrangement renders an individual ineligible for contributions to a health savings account (HSA).

DPC coverage. The preamble to the proposed regulations indicates that an individual generally is not eligible to contribute to an HSA if that individual is covered by a DPC arrangement.

“The general inability of individuals to contribute to an HSA and have a DPC arrangement is a substantial issue that needs to be resolved. The effect of this interpretation is that employers that have had success in making DPC arrangements available in connection with the traditional health plans they offer are unable to extend the same benefits to their employees who are covered by an HSA-eligible HDHP. Also, employees who want to contribute to an HSA do not have the option to enroll in a DPC arrangement without regard to whether their employer has any involvement,” the Council writes.

The Council urges Congress to remove this barrier by passing legislation along the lines of the Primary Care Enhancement Act of 2019 (H.R. 3708 and S. 2999). It also encourages Treasury and IRS to consider the extent to which they can utilize existing interpretative authority with respect to Code Sec. 223 to define a “health plan” to not encompass DPC arrangements.

Clarifications on interactions. The Council also notes the proposed regulations outline two circumstances in which an individual who is covered by a DPC arrangement would not be precluded from contributing to an HSA. One circumstance is where the DPC arrangement solely provides coverage which otherwise doesn’t preclude individuals from contributing to an HSA under the general statutory HSA rules, such as disregarded coverage, disregarded insurance, and preventive care. The second circumstance is when “an individual is covered by a direct primary care arrangement that does not provide coverage under a health plan or insurance (for example, the arrangement solely provides for an anticipated course of specified treatments of an identified condition).”

The Council requests that additional clarity be provided regarding the circumstances in which a DPC arrangement does not constitute a “health plan” or insurance so that the HSA interaction rules can be applied with consistency and certainty.

“We request that Treasury and the IRS explain why that type of an arrangement is not a ‘health plan’ or insurance, including whether the answer is contingent on whether the arrangement is provided under a separate policy, certificate or contract of insurance and whether it is limited to one identified condition or whether it could include more than one identified condition.”

The Council also indicates additional clarity is needed regarding when a DPC arrangement constitutes “medical insurance” or non-insurance medical care because the status of a DPC arrangement as “medical insurance” affects whether the related costs may be reimbursable from certain medical savings accounts, specifically health FSAs, excepted benefit HRAs and HSAs.


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