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IRS Allows Health Plans to Cover More Treatments Before Deductible Is Met

High-deductible plans with health savings accounts may be more attractive

A woman is looking at her phone while sitting on a bench.

updated July 25, 2019

The Treasury Department and IRS added treatments for a range of chronic conditions to the list of preventive-care benefits for which a high-deductible health plan (HDHP) can pay—even if a plan enrollee's health care spending hasn't surpassed the plan deductible—without running afoul of the rules allowing pretax contributions to health savings accounts (HSAs).

Medical care, including prescription drugs, for certain chronic conditions will now be classified as preventive care for someone diagnosed with that condition, according to the July 17 Notice 2019-45, which immediately took effect. Any medical care previously recognized as preventive care under IRS rules is still treated as preventive care.

The new guidance adds to the types of medical care that now can be treated as "preventive" 14 cost-effective items or services likely to prevent the worsening of a chronic condition or the development of a secondary condition that would require more costly treatment.  These include beta blockers for coronary artery disease, insulin for diabetes, and statins for heart disease, as well as devices such as blood pressure monitors for hypertension and glucometers for diabetes.

Adjusting HSA Rules

Employees covered by an HDHP may contribute to an HSA. To comply with the IRS rules for making HSA contributions with pretax dollars, an HDHP may not provide benefits for any year until the minimum deductible for that year is satisfied. However, HDHPs are not required to have a deductible for preventive care.

President Donald Trump issued an executive order on June 24 directing the Secretary of the Treasury to issue guidance that expands the ability of patients to select HDHPs that can be used alongside an HSA. The guidance, Trump said, should cover low-cost preventive care, before the deductible, to help maintain the health of people with chronic conditions.

Allowing "coverage for conditions that commonly require maintenance drugs or therapies, such as diabetes, hypertension or arthritis, will no longer prevent people enrolled in an otherwise HSA-compatible HDHP from making HSA contributions," noted Scott Behrens, director of government relations at Lockton, a benefits brokerage and consulting firm.

With employers increasingly offering HDHPs linked to HSAs, "the rules governing health savings accounts need to be modernized to meet the needs of consumers," said Chatrane Birbal, director of policy engagement at the Society for Human Resource Management. The new guidance is a welcome development because otherwise "employees with chronic conditions who enroll in HSA-qualified plans, particularly those whose employers offer only one plan, face substantial barriers to care if they want to manage their chronic conditions," she noted.

Expanding 'Under the Deductible' Coverage

Under Notice 2019-45, the following services and items for people with chronic conditions can now be covered under an HDHP as preventive care.

Preventive Care for Specified Conditions For People Diagnosed with
Angiotensin converting enzyme (ACE) inhibitorsCongestive heart failure, diabetes and/or coronary artery disease
Anti-resorptive therapyOsteoporosis and/or osteopenia
Beta-blockersCongestive heart failure and/or coronary artery disease
Blood pressure monitorHypertension
Inhaled corticosteroidsAsthma
Insulin and other glucose-lowering agentsDiabetes
Retinopathy screeningDiabetes
Peak flow meterAsthma
Hemoglobin A1c testingDiabetes
International normalized ratio (INR) testingLiver disease and/or bleeding disorders
Low-density lipoprotein (LDL) testingHeart disease
Selective serotonin reuptake inhibitors (SSRIs)Depression
StatinsHeart disease and/or diabetes

The IRS action "makes it possible for consumers to more affordably and effectively manage their conditions and maintain improved health," said Mike DiSimone, president and CEO of PayFlex, an administrator of consumer-directed products and services, including HSAs.

Making HDHPs More Appealing

"Given the expansion of the types of preventive [care] that an HDHP can cover, and the tax advantages of an HSA to employees, employers who have not previously implemented a HDHP or HSA may want to consider doing so now," wrote Carol V. Calhoun, an attorney with law firm Venerable in Washington, D.C.

"Raising the attractiveness of HDHP/HSAs potentially can help more Americans improve health outcomes while stretching their health care dollars," said Kevin Robertson, chief revenue officer for HSA Bank, an HSA administrator. "People with these conditions may now be able to receive these treatments at no cost, or at a lower cost, depending on how their insurance plan or employer decide to cover these services, without jeopardizing an individual’s ability to contribute to HSA."

This change not only helps people with these chronic conditions, "but also helps remove perceived expense barriers for anyone evaluating if an HDHP/HSA solution is right for them," Robertson added.

"More people will now be able to realize the financial advantage of health savings accounts and will have the increased flexibility they need to use them," DiSimone said.

With a broader definition of preventive benefits provided at low or no cost, "there is a higher likelihood these employees will take the necessary steps to stay healthy," said David Speier, managing director of benefits accounts at consultancy Willis Towers Watson. "By supporting employees with chronic conditions, it is possible overall cost of the HSA compliant plan will be reduced for employers."

Increasing Coverage Options

Plans will not be required to pay 100 percent for the treatments on this list, explained Kim Buckey, vice president of client services at DirectPath, a benefits education, enrollment and health care transparency firm. "The notice simply means that these treatments are not subject to the HDHP deductible before they are covered. So, if the HDHP has a $2,000 deductible, and normally you'd have to pay $2,000 out of pocket before these services would be covered at, say, 80 percent of their cost, now the IRS is saying they can be covered at 80 percent even if the deductible is not yet met."

The listed services also can be subject to a different, lower deductible, "so the employer might say you have a $500 deductible for these particular services," Buckey added.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

Legitimizing a Common Practice

"This is good news for employers and employees," Buckey noted. "Many employers have been covering these types of medications as 'preventive' for chronic-condition patients for a while now," despite the risk that doing so could run afoul of IRS rules, she noted. "It's encouraging to see the IRS recognizing what's becoming standard practice."

"The IRS has allowed drugs prescribed even for existing conditions to be considered 'preventive' if they prevent the recurrence of a disease from which the insured has recovered or prevent additional complications in an individual who has developed risk factors for a disease," wrote Edward Fensholt, senior vice president and director of compliance services at Lockton. "Drugs for treating high cholesterol (an existing condition) have been considered 'preventive' if they help prevent additional complications, such as a heart attack," he noted. "But outside of the pharmaceutical context the IRS has resisted calls to treat care of existing diseases or illnesses as preventive."

Covering medications for chronic conditions pre-deductible for HDHP enrollees "hopefully will encourage patients to fill those prescriptions, stick to the regimen prescribed by their doctors and delay or prevent the onset of more serious and acute conditions—which, in turn, will save both the employer and the employee money," Buckey said.

"Sponsors of HDHPs may find this guidance helpful as they prepare for the plan year that begins late this year or in 2020," Fensholt noted. "We half suspect, however, that because the IRS has never supplied an exhaustive list of what is considered preventive and what is not, some HDHPs have already been paying for treatment of at least some of the services listed in the chart for the associated conditions."

Health Improves When People Take Their Medicine

"Expanding coverage of preventive products and services for managing chronic conditions will help improve adherence to medication, reduce costs for consumers and improve health outcomes," said Thomas Moriarty, chief policy and external affairs officer at pharmacy and health care firm CVS Health. "With millions of Americans covered through high-deductible health plans, too often they have seen higher out-of-pocket costs on their prescriptions until they have met their deductible. This has created a major financial burden for patients, especially those living with chronic conditions like diabetes, asthma and heart disease."

Research by CVS Health, Harvard University and Brigham and Women's Hospital showed that health care costs were reduced when patients with hypertension, heart failure, diabetes, asthma and depression took their medications as prescribed—and that medical spending by patients with congestive heart failure fell nearly $8,000 per year when they took their medication, despite the increased drug spending.


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