HRAs for DPC?
Updated: May 9
On June 10, 2020, the IRS released proposed regulations regarding direct primary care (DPC) and its treatment under Code § 213.
The proposed regulations define a direct primary care arrangement as a contract between an individual and one or more primary care physicians to provide medical care for a fixed annual or periodic fee without billing a third party.
The preamble states that payments for DPC arrangements could be for medical care under Code § 213(d)(1)(A) or for medical insurance under Code § 213(d)(1)(D), depending on the specific facts. It also mentions that payments for DPC that provides solely for an annual physical exam or an “anticipated course of specified treatments of an identified condition” would be considered medical care.
Thus, the payments for DPC would be medical care expenses under Code § 213(d) and therefore could be reimbursed by an HRA, but FSAs are prohibited from reimbursing amounts paid for DPC because these expenses are treated as payments for insurance.
In addition, it warns that individuals covered by DPC arrangements are not eligible to contribute to an HSA except in limited situations where the arrangement does not provide insurance or provides only disregarded coverage or preventive care. Furthermore, if the employer pays the fee for the arrangement, the arrangement will be a group health plan that potentially disqualifies someone from HSA-eligibility.
Remember that in order to open and contribute to an HSA, an individual can have no other coverage (other than specific exceptions) 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 below the statutory minimum HDHP deductible. As a result, coverage under a 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, they would likely cause HSA-eligibility to be lost.
Lastly, these proposed regulations do not address the question of ERISA’s applicability. However, it notes that the DOL has advised that in most circumstances, employer funding of an arrangement that provides health benefits to employees will create an ERISA plan.
Comments are due by Aug 10th, with subsequent final regulations to follow. Thus, employers will need to await final regulations.
IRS Proposed Rules: https://www.govinfo.gov/content/pkg/FR-2020-06-10/pdf/2020-12213.pdf