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Employers Expand Pre-Deductible Coverage for HSA-Eligible Health Plans

Benefits changes make managing chronic conditions more affordable

November 15, 2021 | Stephen Miller, CEBS

A hand holding a stethoscope and a bag of money with the word hdhp.

Two years ago, the U.S. Treasury Department and the IRS issued IRS Notice 2019-45, which added prescription drug coverage and other treatments for chronic conditions to the list of preventive-care benefits that a high-deductible health plan (HDHP) can pay—even if a plan enrollee's health care spending hasn't exceeded the plan deductible—without running afoul of the rules allowing pretax contributions to health savings accounts (HSAs).

Employers were allowed to change their HDHPs to offer expanded pre-deductible care for chronic conditions but weren't required to do so.

According to a new report from the nonprofit Employee Benefit Research Institute (EBRI) in Washington, D.C., Employer Uptake of Pre-Deductible Coverage for Preventive Services in HSA-Eligible Health Plans, three-quarters of large U.S. employers offering HSA-eligible health plans have expanded pre-deductible coverage for medications and services that keep chronic conditions under control, in response to IRS Notice 2019-45.

The data for this study comes from a survey of benefits decision-makers at 354 U.S. companies with at least 200 employees, conducted in July and August.

"Smarter deductibles [for] services that prevent the exacerbation of chronic conditions might be a natural evolution of health plans," said Paul Fronstin, director of EBRI's health research and education program, and co-author of the report.

"Value-based reimbursement promotes the delivery of evidence-based, high-quality care that encourages use of—rather than creates barriers to—high-value services," Fronstin said. "Interventions that improve patient-centered outcomes while ultimately maintaining affordability may be found in the form of clinically nuanced HSA-eligible health plans that better meet workers' clinical and financial needs."

Employers offered several reasons for adding pre-deductible coverage for the 14 health care services allowed under IRS Notice 2019-45. Those who made changes primarily did so for the sake of their employees, but many had business considerations as well, saying that expanding pre-deductible coverage for chronic conditions:

Was the right thing to do (cited by three-quarters of respondents).

Helps with employee retention (two-thirds).

Helps attract new hires (one-half).

Is a long-term cost-saving measure (one-half).

Future Expansion of Health Care Services Sought

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed HSA-eligible health plans to provide pre-deductible coverage for telehealth services, but only through 2021. Normal cost-sharing can still be imposed for telehealth visits, such as through co-pays that the plan may require after the deductible is paid.

Most employers would offer additional pre-deductible coverage if allowed by law, EBRI found. In particular, respondents wanted to:

Make permanent the CARES Act provision allowing pre-deductible coverage of telehealth services within an HSA-eligible plan (three-quarters).

Grant a temporary extension of pre-deductible telehealth coverage beyond the end of 2021 (one-fifth).

SHRM Encourages Continuation of Pre-Deductible Telehealth Coverage

On Nov. 10, the Society for Human Resource Management (SHRM) wrote to Democratic and Republican committee leaders of the U.S. House of Representatives and of the Senate urging them to continue pre-deductible coverage of telehealth services for high-deductible health plans and to treat telehealth services as an excepted benefit. Both policies were temporarily made available to employers under the CARES Act.

"Americans with high-deductible health plans and health savings accounts … can currently receive telehealth benefits pre-deductible. Unfortunately, this provision is set to expire on Dec. 31," according to the letters, which were signed by Emily M. Dickens, SHRM chief of staff, head of government affairs and corporate secretary. "First-dollar coverage is beneficial to employees because it allows a health insurance provider to cover telehealth services without a patient having to first pay their co-pay or deductible."

The letters also recommended that Congress promote access to telehealth services by permanently treating these services as an excepted benefit offered apart from employee health plans that must comply with many requirements of the Affordable Care Act and other statutes.

"Prior to the COVID-19 pandemic, stand-alone telehealth service programs could be offered to full-time employees enrolled in the employer medical plan but not to other workers," SHRM pointed out. "Flexibilities included in the CARES Act temporarily allow all workers, including seasonal and part-time workers, to access telehealth as an excepted benefit. A permanent solution would allow employers to expand access to telehealth as an excepted benefit beyond the current public health emergency, and doing so would allow more workers to access telehealth services."

Drug Rebates Don't Count Toward Annual Deductibles

In another regulatory development regarding pre-deductible coverage for HSA-eligible plans, the IRS issued Information Letter 2021-0014 earlier this year, addressing how prescription drug coupons and rebates affect an HDHP deductible and whether medical services covered by the HDHP under a state mandate are exempt from the HDHP deductible.

"The IRS affirmed its previously published position that, for HSA/HDHP purposes, only actual medical expenses count toward the HDHP deductible," according to Sarah Magill, an attorney in the Chicago office of law firm Seyfarth, and Kelly Pointer, an attorney in the firm's Houston office, in a Nov. 1 commentary.

For example, they explained, "if an individual presents a coupon at the pharmacy reducing the price of a covered drug from $1,000 to $600, the amount credited toward the HDHP deductible is only $600 because that is the actual expense the individual incurred."

The IRS further noted that state insurance law mandates have no effect on HDHP rules.

"HDHP rules require the covered individual to satisfy the minimum HDHP deductible before the plan can cover any benefits other than preventive care," Magill and Pointer noted. "For example, assume a state requires insured plans to cover male contraception and sterilization services without cost sharing. Because these services would not be 'preventive care' under [Internal Revenue] Code Section 223, a plan that covers these services before an individual satisfies the minimum deductible for an HDHP would not constitute an [HSA-eligible] HDHP, regardless of whether the coverage of such benefits is required by state law."

The key takeaways from the IRS guidance, Magill and Pointer said, are that:

HDHP/HSA participants can use drug coupons and discounts, provided that the value of the coupon or discount does not count towards the HDHP minimum deductible.

While insured HDHPs must cover certain benefits under applicable state laws, those benefits may not be covered without cost-sharing that is otherwise applicable to non-preventive services (such as co-pays) before the deductible is met.