The IRS announced that high deductible health plans (“HDHPs”) with health savings accounts may be used to pay for COVID-19 testing* and treatment, even if participants have not met their deductible amounts.
A HDHP with a health savings account (“HSA”) is a health insurance plan that combines traditional medical insurance with a tax-favored savings account. Generally, a participant must first pay for non-preventative health care costs out-of-pocket, up to their deductible amount, before the plan covers those costs. If a plan qualifies as an HDHP, a benefit to its participants is that they can establish an HSA, which is funded with tax-deductible contributions (often referred to as pre-tax dollars because HSA contributions are deducted from an individual’s taxable income). Due to the restriction on payment of non-preventative health care costs by HDHPs until the participant has met their deductible, insurance providers were initially uncertain as to whether or not an HDHP could pay for COVID-19 testing and treatment costs if a participant had not met their deductible without being disqualified as an HDHP.
In order to eliminate potential financial barriers to COVID-19 testing and treatment, the IRS Notice 2020-15 (the “Notice”) announced that the IRS is waiving the minimum deductible requirements for HDHPs with respect to COVID-19 testing and treatment. HDHPs are now permitted to pay for costs related to COVID-19 testing and treatment for their participants, whether or not the participants have met their minimum deductibles. Such COVID-19 related expenses will be disregarded for purposes of determining whether a plan is a HDHP and whether its participants are eligible to make tax-deductible contributions to their HSAs. This means that participants will have little to no out-of-pocket expenses if a HDHP opts to cover all or some of the costs associated with COVID-19 testing and treatment, even if they have not yet met their deductible for the year, and participants can continue to make tax-deductible contributions to their HSAs.
The Notice only permits, and does not require, that HDHPs cover the costs associated with COVID-19 testing and treatment, therefore, group administrators for employers should check with their insurance provider to find out what COVID-19 related expenses are covered by their plan.
The Notice is available here.
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*The COVID-19 lab test is being offered free of charge, but other required diagnostic and medical services are not.