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On March 11, 2020, the Internal Revenue Service (IRS) made an important announcement concerning high deductible health plans (HDHPs) and the Coronavirus known as COVID-19. The IRS advised that HDHPs can provide COVID-19-related testing and treatment without a deductible or with a deductible below the statutory requirements without jeopardizing their status. Additionally, individuals covered by HDHPs offering COVID-19 coverage can continue to contribute to Health Savings Accounts (HSAs) without losing the tax benefits of the HSAs. This significant policy change is part of the IRS response to the public health concerns created by COVID-19.
What Does this Announcement Mean for Employers?
To understand the impact of this announcement, employers should consider the relationship between HDHPs and HSAs. An HDHP is a health plan that typically 1) has a higher deductible than a traditional health insurance plan, and 2) includes a maximum annual deductible and limit on out-of-pocket expenses, such as co-payments. For 2020, the IRS defines HDHPs as plans with a minimum deductible of $1,400 for an individual or $2,800 for a family. The annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) may not exceed $6,900 for self-only coverage or $13,800 for family coverage. The benefits of HDHPs generally include lower premiums and the ability to contribute to a Health Savings Account (HSA)—essentially a tax-advantaged personal savings account for medical expenses. HSAs help offset the costs of the higher deductibles associated with the HDHPs.
If your organization offers a plan that meets these requirements, your HDHP plan can offer COVID-19 coverage to beneficiaries prior to them meeting the deductible, without concerns for the tax-related status of the plan. For your employees, this means that they can receive COVID-19 coverage prior to meeting their deductibles, without losing the tax benefits of their HSAs.
Employers should also be aware of the intersection between HSAs and the Affordable Care Act (ACA) rules. 2020 ACA maximum out-of-pocket expenses are $8,150 for an individual and $16,300 for a family (versus $7,900 individual and $15,800 family in 2019). This means that a plan could potentially satisfy the higher ACA out-of-pocket maximums while failing to meet the HDHP out-of-pocket limitations. If your organization is wary of your ACA accuracy, you should undergo a cost-free ACA Penalty Risk Assessment to identify any potential IRS penalty exposure.
