High Deductible Health Plans


Reference

Characteristics of an HDHP
Preventive Care

Annual Cost-sharing Limits

Disregarded Coverage/Permitted Insurance

HDHPs and Minimum Value

COVID-19 UPDATE

According to IRS Notice 2020-15, a health plan that otherwise satisfies the requirements to be a high deductible health plan will not fail to be an HDHP merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible below the minimum deductible (self only or family) for an HDHP. Check out our blog here.

In addition, the CARES Act allows high-deductible health plans (HDHPs) to cover telehealth and other remote care services without a deductible for plan years beginning on or before December 31, 2021 and with respect to services provided on or after January 1, 2020.

See our COVID-19 task for more information.

Overview

While the term “high deductible health plan” can be used to describe any health plan with an arbitrarily large deductible, in this module the term “high deductible health plan” or HDHP will be used in a technical sense as a plan with specific design features that are described in the Internal Revenue Code.

Persons whose only coverage is under an HDHP may make or receive pre-tax contributions to a health savings account (HSA), with the exception of veterans.  Beginning January 1, 2016, If an otherwise-eligible veteran receives hospital or medical care for a service-connected disability through the VA or TRICARE, they are still eligible to make or receive pre-tax contributions to an HSA.  See Employers and HSAs for more information on the ways that employers can be involved with HSAs.

Characteristics of an HDHP

An HDHP is a health plan that has statutorily prescribed minimum deductible and maximum out-of-pocket limits.  The limits are adjusted annually for inflation and are published by the IRS no later than June 1 of the preceding year.

The limits for family coverage (i.e. any coverage other than self-only coverage) are twice the applicable amounts for self-only coverage.

An HDHP cannot pay any benefits until the deductible is met.  The only exception to this rule is benefits for preventive care.

Preventive Care

IRS “safe harbor” guidance on the scope of what constitutes preventive care includes:

Preventive care does not generally include any service or benefit intended to treat an existing illness, injury, or condition.

The IRS has requested comment but has not provided guidance on the extent to which benefits provided by an employee assistance program, mental health program or wellness program may qualify as preventive care, including comments regarding the scope of treatments provided as benefits through counseling and health assessments. It has also requested comments on the extent to which drug treatments, either solely by prescription or as part of an overall treatment regimen should be treated as preventive care and the appropriate standards for differentiating between drug treatments that would be considered preventive care and those that would not be considered preventive care.  Accordingly, employers should exercise caution before providing payment for these items under an HDHP prior to satisfaction of the deductible.

However, the IRS has stated that a plan will not fail to be an HDHP if it covers preventive services with no cost sharing as required by the ACA.

Annual Cost-sharing Limits & HDHPs

Beginning in 2016, the annual cost-sharing limit for self-only coverage will be set at $6,850 (not to be confused with the HDHP annual maximum out-of-pocket limit)  and for family [more than 1 covered individual] coverage at $13,700.  In addition, the annual limit for self-only coverage applies to all individuals, including each individual under family coverage.  In essence requiring embedded deductible plans. These limits are adjusted annually.

As an example of how the self-only limit will apply, let’s assume a family is covered by a plan with a $10,000 deductible/maximum annual out-of-pocket limit.  Then let’s assume, one member of the family incurs $15,000 in claims expense.  That family would be responsible for paying $6,850 [the self-only out-of-pocket maximum] towards that $15,000 charge and the plan would be responsible for paying the remaining $8,150.  Any additional covered expenses that this one family member might incur throughout the remainder of the plan year, will be paid entirely by the plan.  This leaves an additional amount of $3,150 that the family could be liable for if any of the other family members experience covered claims [$10,000 maximum – $6,850 paid for family member 1 = $3,150].  As usual, once the family reaches the maximum $10,000 out-of-pocket limit, the group has no cost sharing for the rest of the plan year.

Under the requirements for an HDHP, except for preventive care, a plan may not provide benefits for any year until the deductible for that year has been met. In the case of family coverage, a plan is an HDHP only if, under the terms of the plan and without regard to which family member or members incur expenses, no amounts are payable from the HDHP until the family has incurred annual covered medical expenses in excess of the minimum annual deductible for family coverage [$2,600 for 2016]. Because the $6,850 self-only maximum annual limitation on cost sharing will exceed the 2016 minimum annual deductible amount for family HDHP coverage ($2,600), it will not cause the plan to fail to satisfy the requirements for a family HDHP.

For Example purposes the 2016 Limits are:

 HDHP Limits  ACA Limits
 $6,550 for self-only coverage  $6,850 for self-only coverage
 $13,100 for family coverage  $13,700 for family coverage

These limits are adjusted annually.

A family HDHP can comply with both limits as long as the self-only, out-of-pocket maximum is no higher than the self-only ACA limit and pays all expenses for all family members once the group’s expenses reach the family out-of-pocket maximum established by the IRS for HDHPs (or the family maximum limit of the plan, if it is lower than the ACA limits).

 

Disregarded Coverage/Permitted Insurance

Even if an individual is covered under an HDHP, he will not be eligible to make or receive HSA contributions if he is covered under any other health plan that is not is not an HDHP.  For example, this could occur if the employee:

There are however certain types of benefits which will not compromise a person’s HSA eligibility even though they provide benefits before the HDHP deductible limit is met.  These are called permitted insurance and disregarded coverage.

Permitted insurance must be provided through an insurance policy substantially all of which provides:

Disregarded coverage may be insured or self-insured and includes coverage for accidents, disability, dental care, vision care or long term care.   This would include a limited-scope FSA or HRA that only provides coverage for dental and vision care.

In addition, an individual will not cease to be eligible to make or receive HSA contributions solely because the individual is covered under an EAP, disease management program or wellness program if the program does not provide significant benefits in the nature of medical care or treatment.  In determining whether a program provides significant medical benefits, screening and preventive services otherwise permissible under an HDHP are disregarded.

Similarly, employee access to an on-site clinic will not impact HSA eligibility if the clinic does not provide significant benefits in the nature of medical care (in addition to disregarded coverage or preventive care).  For example, an on-site clinic that provides physicals and immunizations; injecting antigens provided by employees (e.g., performing allergy injections);  a variety of aspirin and other nonprescription pain relievers; and treatment for injuries caused by accidents at the work site would be permitted.

HDHPs and Minimum Value

The ACA provides that large employers who do not offer essential health benefits that are affordable and provide minimum value may be subject to a shared responsibility penalty.  It is possible that an HDHP, on its own, will not satisfy the minimum value requirement.   However, proposed regulations state that all amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan’s share of costs for purposes of the minimum value calculation and are treated as amounts available for first dollar coverage.

The minimum value calculator available on the CMS web site provides more information on how to adjust the value of an HDHP plan for any employer HSA contributions.

See the Geek Out! page on Employers and HSAs for more information on the rules governing employer contributions to HSAs.

Additional CMS FAQ’s:

http://www.compliancedashboard.net/wp-content/uploads/2015/04/FamilyofoneMOOPPolicyFAQ_5CR_031015.pdf

https://www.regtap.info/uploads/library/Embedded_MOOP_FAQ__V1_CR_050815.pdf