IRS Issues Guidance on High Deductible Health Plans and COVID-19 Expenses

COVID-19 Update

Date: March 12, 2020

As part of coordinated federal efforts to eliminate potential barriers to testing and treatment related to the COVID-19 pandemic, on March 11, 2020, the Internal Revenue Service (IRS) released IRS Notice 2020-15, guidance that gives high deductible health plans (HDHPs) greater flexibility to provide pre-deductible coverage of COVID-19 testing and treatment. According to Notice 2020-15, employer-sponsors of HDHPs may choose, but are not required, to waive deductibles (or apply lower deductibles) for medical care services received and items purchased related to COVID-19 testing and treatment. Providing this coverage will not disqualify a plan as an HDHP for health savings account (HSA) eligibility purposes, and therefore will not trigger a participant’s loss of eligibility to contribute to an HSA.

Specifically, Notice 2020-15 states:

[U]ntil further guidance is issued, a health plan that otherwise satisfies the requirements to be a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code (Code) will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Therefore, an individual covered by the HDHP will not be disqualified from being an eligible individual under section 223(c)(1) who may make tax-favored contributions to a health savings account (HSA).

A few things to keep in mind about this guidance:

  • The IRS has not set an expiration date for this relief; it remains in effect until further guidance is issued.
  • As noted above, it does not require HDHPs to provide first-dollar coverage for COVID-19 testing or treatment, it merely permits them to do so without compromising a plan’s HDHP status. Employers could choose, for example, to waive deductibles for COVID-19 testing but not for treatment.
  • Any waiver or application of reduced deductibles or other cost-sharing (e.g., copayments or coinsurance) requirements for COVID-19 testing and treatment may necessitate an amendment to a health plan’s document and/or summary plan description.
  • It appears to apply to both self-insured and fully insured plans.
    • If an HDHP is fully insured, the employer will need to check with its insurer to determine options for waiving deductibles and cost-sharing. Several states are now requiring insurers to implement reduced cost-sharing.
    • If an employer has stop-loss coverage in connection with the plan, it should contact its stop-loss carrier to ensure that waiving deductibles and other cost-sharing will not impact the stop-loss coverage.
  • If an employer decides to waive cost-sharing for all COVID-19 treatment (including potential hospitalization), it should consider whether that change creates a right for employees to newly enroll in the plan mid-year and whether communications should be sent to eligible employees who have not enrolled.
  • Some plan sponsors and industry groups have argued that preexisting guidance already permits pre-deductible coverage of COVID-19 testing. The IRS did not comment on this in Notice 2020-15, though the fact that it considers the notice to provide temporary relief suggests that it does not agree that prior guidance permits such coverage. However, the IRS did clarify that “[v]accinations continue to be considered preventive care under section 223(c)(2)(C) for purposes of determining whether a health plan is an HDHP.”

For more information, please contact:

Julia Ann Love

Beth A. Mandel

Stephen R. Penrod

Laura A. Ryan

Kim Wilcoxon

Additional Resources

We have assembled a firmwide multidisciplinary task force to address clients’ business and legal concerns and needs related to the COVID-19 pandemic. Please see our COVID-19 Task Force page for additional resources, including a checklist to help employers review workplace policies and procedures and a link to a recording of our recent webinar, “COVID-19: Planning Considerations for Employers.”

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