Could Free COVID-19 Services Sabotage Your HSA? IRS Just Weighed In
In the face of the COVID-19 pandemic, we are seeing an unprecedented team effort to do whatever it takes to stop the virus from spreading further. A growing number of states are mandating health insurance plan coverage of COVID-19 testing, screening and sometimes treatment without participant cost-sharing, and vendors are adding measures like no cost-sharing telemedicine services to keep individuals from having to go to medical facilities. But are there unintended tax consequences related to these otherwise important containment measures?
On March 11, the IRS released Notice 2020-15, which indicates that medical care services associated with testing for and treatment of COVID-19 may be provided by a qualified high deductible health plan (HDHP) on a pre-deductible basis, and that this coverage will not interfere with an individual’s ability to make or receive health savings account (HSA) contributions. This was welcome news, and allows employers to breathe a sigh of relief since the mandates to cover testing, screening and/or treatment with no participant cost-sharing were coming down from the states and insurers, typically without the employer having an option.
Unfortunately, employers still face a dilemma when it comes to insurer and vendor offers of no cost-sharing telemedicine services for all reasons, not just COVID-19 screening. To the extent an employee is receiving telemedicine services prior to satisfying the HDHP deductible, and the services are not considered “preventive” under existing HSA rules, there is a real concern that employees’ will lose the ability to make or receive HSA contributions. The hope is that the IRS might provide additional guidance to avoid this result. But in the absence of such guidance, employers face the dilemma of both wanting to support the use of virtual medicine for public health purposes, and maintaining their employees’ HSA eligibility.
The good news is that there may be some options. Employers will want to explore the ability to opt-out of these no cost-sharing telemedicine programs for their employees enrolled in the HSA-qualifying HDHP. But they do not want to give up on encouraging those employees to use telemedicine. Other incentives, such as an extra HSA contribution based on telemedicine visits, might be considered. Some vendors may be able to assist in the administration of this type of HSA incentive design.
We know that employers are committed to doing whatever it takes to keep their employees safe and healthy, while also working for the public good in the face of the COVID-19 pandemic. Pursuing a course of action that preserves your employees’ HSA eligibility is a wise choice to maintain financial health as well.