Onsite Health Clinics: What's the Effect on HDHPs and HSAs?

Offering significant health benefits at no or reduced cost can nix health savings account eligibility

By Jewell Lim Esposit © Jackson Lewis Nov 8, 2017
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To help control health care costs and encourage wellness, employers can find it appealing to offer onsite health clinics for their employees. Before an employer actually commits to an onsite clinic, however, legal and operational issues should be evaluated such as:

  • Whether the onsite clinic will be a group health plan covered under the Employee Retirement Income Security Act (ERISA) and thus will be subject to:

 Written disclosure requirements.

 The Health Insurance Portability and Accountability Act's (HIPAA's) privacy and security regulations. If HIPAA does not apply, consider state law privacy and security requirements;

 Nondiscrimination issues under the Internal Revenue Code (where benefits that impermissibly favor highly compensated individuals trigger adverse income tax consequences for those individuals and more burdensome tax reporting requirements).

 Health plan continuation coverage rights for employees under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

  • Whether the employer sponsoring the onsite clinic can properly navigate issues if it also wants to offer employees high deductible health plans (HDHPs) paired with health savings accounts (HSAs).

Tax Benefits of HSAs

For an employee, HSA benefits include pretax paycheck deductions, tax-free earnings on money in the HSA, and tax-free withdrawals for qualifying health expenses (and, after age 65, the employee can withdraw from an HSA for any purpose). 

According to the Internal Revenue Service guidance in Notice 2008-59, however, having access to an onsite health clinic that provides significant medical benefits for free or at a reduced cost may prevent an employee from making HSA contributions. Such contributions—if improper—would be subject to income and excise taxes.

Permissible Benefits Won't Affect HSA Eligibility

An onsite health clinic may offer the following permissible medical benefits at no cost, without affecting HSA eligibility: "permitted" coverage (such as vision and dental care), "preventive care" (such as shots and screenings), and "insignificant" medical benefits (collectively, permissible benefits). IRS Notice 2008-59 explains in an example that "insignificant" medical benefits include:

  • Physicals and immunizations.
  • Injecting antigens provided by employees (e.g., performing allergy injections).
  • A variety of aspirin and other nonprescription pain relievers.
  • Treatment of injuries caused by accidents at an employer's location.

The IRS notice concludes that an onsite clinic providing the above limited services would not interfere with employees' HSA eligibility because the clinic would not be providing "significant benefits in the nature of medical care" other than the permitted coverage and preventive care.

[SHRM members-only toolkit: Managing Health Care Costs]

Significant Benefits Will Affect HSA Eligibility

If an onsite clinic provides "significant benefits" for free or at reduced-cost (i.e., below fair market value), an employee may lose eligibility for an HSA. Indeed, the IRS notice indicated that an employee who has mere access to (rather than one who actually uses) such an onsite clinic will not be an HSA-eligible individual.

The IRS notice concluded that an employer that permits its employees to receive care at its onsite facilities for all of their medical needs, provides medical care at no charge to uninsured employees, and waives all deductibles and co-payments for employees who have health insurance would be providing "significant benefits in the nature of medical service."

As already stated, because of the rules for HSAs, an onsite clinic can provide only permissible benefits at no cost. Although there is no IRS guidance on whether an otherwise HSA-eligible employee may simply pay fair market value for these services, the IRS notice suggests by negative implication that an employee might be able to preserve HSA eligibility by paying for the significant benefits that the onsite clinic provides.

Success in Having Both an Onsite Clinic and HSAs

To successfully offer an onsite health clinic, with a HDHP/HSA in place, an employer will need to be able to:

  • Drill down on all of the medical benefits provided by the onsite clinic.
  • Delineate the clinic's permissible benefits.
  • Delineate the clinic's significant medical benefits.
  • Identify the procedure for calculating fair market value of a significant benefit, if there are any.
  • Vet out which employees need to pay for any significant benefits out of pocket.
  • Identify what the deductible is per employee.
  • Keep track of the employee payments towards annual deductible limits.

Jewell Lim Esposit is a principal in the Washington, D.C. region office of Jackson Lewis P.C © 2017 Jackson Lewis PC. All rights reserved. Reposted with permission.

Related SHRM Article:

Telemedicine Missteps: Beware HSA Eligibility and Other Compliance TrapsSHRM Online Benefits, June 2017

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