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An HSA reprieve for residents of states with male-contraceptive mandates
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When a Maryland statute
took effect Jan. 1 requiring all state-regulated health plans to pay for men's vasectomies regardless of any deductible, it left Marylanders' high-deductible health plans (HDHPs) incompatible with IRS rules for health savings accounts (HSAs).
Illinois and Oregon have also enacted laws requiring health insurers to cover certain male contraception on a first-dollar basis,
according to attorneys at law firm Ogletree Deakins.
The IRS has now provided two years of temporary relief to HSA holders in these states, who are hoping either that their state legislature changes its law or that the IRS expands the health services that can be covered with no deductible by HSA-compatible health plans.
Under the federal tax code and associated IRS rules, an HSA must be coupled with an HDHP that:
an array of female contraceptive methods are considered preventive care, and the Affordable Care Act mandates that they be covered with no deductible—a matter that has resulted in continuing litigation—male contraceptive procedures are not considered preventive coverage. Consequently, Maryland's Contraceptive Equity Act, for instance, had cast doubt on whether state residents could contribute to their HSAs starting this year.
The Maryland law applies to all health benefit plans that are issued, delivered or renewed in the state on or after Jan. 1, 2018, except for self-insured employer plans, which are exempt due to the federal Employee Retirement Income Security Act.
Maryland residents with coverage through self-insured employers and those covered by health plans issued in nearby states "are not in jeopardy, and the state legislature has created potential tax inequity by adding this insurance mandate," the Maryland Association of CPAs
pointed out last December.
To resolve the problem, at least temporarily, the IRS
issued Notice 2018-12 on March 5, providing two years of transition relief for HSA holders in states with male-contraceptive coverage mandates.
The notices clarified that "a health plan providing benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for a high deductible health plan" will not be judged to provide "disqualifying coverage" that prevents account holders from making new HSA contributions.
Until 2020, HSA holders will not be blocked from making new contributions to their accounts just because they are covered by a plan that includes such coverage.
"The Treasury Department and the IRS are aware that certain states require benefits for male sterilization or male contraceptives to be provided without a deductible," the notice stated. "Certain states may wish to change their laws that require benefits for male sterilization or male contraceptives to be provided without a deductible in response to this notice, but may be unable to do so in 2018 because of limitations on their legislative calendars or for other reasons."
The transition relief applies to HSA contributions starting on Jan. 1, 2018, when the Maryland law took effect.
"The IRS took notice of state laws like Maryland's, and generally assumes the state legislature wasn't entirely aware of the effect its insurance mandate would have on employees' HSA eligibility," said Edward Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy based in Kansas City, Mo.
[SHRM members-only toolkit:
Managing Health Care Costs]
Revisiting Preventive Care
The Treasury Department noted it was considering ways to expand the use and flexibility of HSAs and HDHPs while remaining consistent with tax law, and requested comments on the appropriate standards for distinguishing benefits and services that should be considered preventive care and those that should not. No comment deadline was given.
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