The IRS has expanded (Notice 2019-45) the list of preventive care benefits that a high deductible health plan (HDHP) under Section 223(c)(2) may provide without a deductible or with a deductible below the applicable minimum deductible (individual or family) for an HDHP.

Background

Section 223 allows only "eligible individuals" to contribute to health savings accounts (HSAs). Under Section 223(c)(1), an eligible individual must be covered under an HDHP and may not be covered by another health plan that is not an HDHP.

Section 223(c)(2)(A) prohibits an HDHP from providing benefits for any year unless a minimum deductible is satisfied, although Section 223(c)(2)(C) provides a safe harbor allowing an HDHP to provide preventive care benefits without a deductible or with a deductible that is below the minimum annual deductible required under Section 223(c)(2)(A). For these purposes, preventive care must either be described under Section 1861 of the Social Security Act or be determined in Treasury and IRS guidance to constitute preventive care.

A series of IRS notices clarify what qualifies as preventive care:

• Preventive care generally does not include a service or benefit to treat an existing illness, injury, or condition (Notice 2004-23; see Tax Alert 2004-0647)
• Treatment incidental or ancillary to preventive care services is considered to be within the preventive care safe harbor if it would be unreasonable or impracticable to treat the condition by performing another procedure; drugs/medication to treat risk factors of a disease are considered preventive care (Notice 2004-50)
• Benefits for male sterilization or male contraception are not considered preventive care for these purposes (Notice 2018-12) (however, transition relief is provided for periods before 2020).

In June 2019, Executive Order 13877 directed Treasury and the IRS to determine how the use and flexibility of HSAs and HDHPs could be expanded consistent with Section 223, and Notice 2019-45 has been issued as a result.

Notice 2019-45

The new notice explains that although prior guidance stated that preventive care generally does not include the treatment of an existing illness, injury, or condition, Treasury and the IRS "are aware that the cost barriers for care have resulted in some individuals who are diagnosed with certain chronic conditions failing to seek or utilize effective and necessary care that would prevent exacerbation of the chronic condition. Failure to address these chronic conditions has been demonstrated to lead to consequences, such as amputation, blindness, heart attacks, and strokes that require considerably more extensive medical intervention."

Therefore, Notice 2019-45 provides that certain medical care services, including providing prescription drugs, to treat certain chronic conditions should be classified as preventive care. The following list of these medical services and related items is provided in an appendix to the notice. Treasury and the IRS intend to periodically review this list, approximately every 5 to 10 years:

The Notice explains that the items identified in the appendix are an exclusive list determined by reference to three principles:

1. The service or item is low-cost
2. There is medical evidence supporting high cost efficiency (a large expected impact) of preventing exacerbation of the chronic condition or the development of a secondary condition, and
3. There is a strong likelihood, documented by clinical evidence, that with respect to the class of individuals prescribed the item or service, the specific service or use of the item will prevent the exacerbation of the chronic condition or the development of a secondary condition that requires significantly higher cost treatments

The Notice is clear that taxpayers may not use these principles to identify additional services or items to treat as preventive care.

Implications

Many employers currently provide HDHPs for their employees. Because Notice 2019-45 expands the preventive services safe harbor, these arrangements may be more viable for individuals with ongoing health conditions, such as diabetes. The notice presents a new design consideration for employers that already offer HDHPs or are considering offering HDHPs to their employees.

The expansion of the preventive services safe harbor under the notice is effective immediately; however, there is no requirement that the items covered by the expanded preventive services safe harbor be included under an HDHP. Whether to adopt the expanded preventive services safe harbor in an HDHP offered in a group health plan is an employer design decision. The services identified in the notice are not the type of preventive services that the Affordable Care Act requires group health plans to cover without cost sharing.

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