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Direct Primary Care and HSA Eligibility

Updated: May 18, 2023

In order to open and contribute to an HSA, an individual can have no other coverage (other than preventive care) before the statutory HDHP deductible is satisfied. This means that an HSA-eligible person can’t be covered by any health plan that pays benefits before the statutory minimum HDHP deductible has been met. As a result, coverage under a telemedicine program, on-site clinic, or direct primary care (DPC) arrangement that pays benefits before the deductible is met would generally disqualify someone from HSA-eligibility.

Direct primary care usually includes patient consultations, physician office visits and health monitoring, regardless of whether it is offered through insurance or some type of subscription arrangement. If the DPC services extend beyond the categories of permissible coverage (preventive care, permitted insurance, or permitted coverage) and they provide benefits before the statutory minimum HDHP deductible is satisfied, this is considered "first-dollar coverage" and would likely cause HSA eligibility to be lost.

While the IRS has not directly addressed the HSA-eligibility consequences of DPC or telemedicine in any guidance, these benefits are very similar to “mini med” benefits, which the IRS has clearly indicated would prevent HSA eligibility. And as of today, the IRS has not published any guidance suggesting that even narrow telemedicine or DPC benefits could be disregarded for HSA-eligibility purposes on the grounds that they do not provide “significant benefits in the nature of medical care”—an exception that the IRS has recognized for certain on-site/first aid clinics, EAPs, disease-management programs, and wellness programs.

Absent any specific exclusion by the IRS, some employers have considered the option of requiring that employees pay fair market value (FMV) for each service in order to preserve HSA-eligibility (a similar strategy used for on-site clinics).

IRS Notice 2008-59 could be interpreted to say that any medical services (whether insignificant or significant) could be provided to employees via telemedicine or DPC without negatively affecting their HSA eligibility, as long as employees paid at least FMV for those services.

More recently, an IRS official informally said that an arrangement under which an employee pays for each visit would probably not interfere with HSA eligibility. But an arrangement where the employee pays a monthly premium for unlimited visits or the employer pays for the visits and excludes the cost from the employee’s income would cause HSA eligibility to be lost.

These arrangements, however, raise the difficult question of what FMV should be for the services. There is no set amount, but it seems reasonable that the FMV should be more than a copay and obviously more than $0. For example, some telemedicine and onsite clinics have charged around $40 to $65 for a single visit, but it isn’t clear if this is FMV because FMV is not defined.

In addition, there is a belief that if a program isn't considered "insurance," then it somehow doesn't count as disqualifying coverage for purposes of HSA-eligibility. There is no statutory or IRS exception for this: Under the statute, an individual can't have coverage under any non-HDHP that provides coverage for any benefit covered by the HDHP. IRS rules (see below) interprets this coverage restriction to mean that any other health coverage that pays first-dollar coverage would disqualify an otherwise eligible individual unless it constitutes preventive care, permitted coverage (e.g., standalone dental or vision) or permitted insurance (e.g., specified illness or indemnity coverage).

Code §223(c)(1)(A) Eligible individual. In general. The term “eligible individual” means, with respect to any month, any individual if—

(i) such individual is covered under a high deductible health plan as of the 1st day of such month, and

(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan—

(I) which is not a high deductible health plan, and

(II) which provides coverage for any benefit which is covered under the high deductible health plan.

Also, remember that DPC offered through an employer is likely considered a group health plan and is therefore subject to ERISA, COBRA and HIPAA. Again, this is true even if the DPC program is considered insurance, a membership program or whatever the state defines it as.

Thus, when offering DPC, the employer must require a charge for each visit (visits cannot be free with a monthly subscription) if they want to preserve HSA eligibility for their employees that is greater than a typical copay and closer to the FMV of an office visit.

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