394 / What is a high deductible health plan for purposes of a Health Savings Account (HSA)?
In response to the evolving COVID-19 pandemic, the CARES Act allowed HDHPs to cover the cost of telehealth services without cost to participants before the HDHP deductible has been satisfied. HDHPs providing telehealth coverage do not jeopardize their status as HDHPs. Plan members similarly retain the right to fund HSAs after taking advantage of cost-free telehealth services. The Consolidated Appropriations Act of 2022 (CAA 2022) extended the CARES Act so that HDHPs could provide first-dollar telehealth services from April 2022 through December 2022 (regardless of the plan year) without jeopardizing HDHP status. The remote services do not have to be related to COVID-19 or preventative in nature to qualify. Plans and participants should note that if the HDHP is a calendar year plan, the usual rules regarding the plan deductible apply between January 2022 and March 2022.1 The 2023 year-end omnibus spending bill extended this relief again, although it should be noted that instead of beginning on January 1, 2023, the relief is effective for plan years beginning after December 31, 2022 and before January 1, 2025 (that means a gap will exist for non-calendar year plans from January 1, 2023 until the date that the plan year begins). The ability to provide pre-deductible remote health services is optional for employers.
Editor’s Note: Under the Inflation Reduction Act, HDHPs will be permitted to cover insulin prior to the participant satisfying the plan deductible effective for tax years beginning after December 31, 2022. This insulin coverage will not adversely affect a participant’s eligibility to contribute to an HSA. Going forward, HDHPs will be permitted to cover selected insulin products before the deductible is satisfied regardless of whether the participant has been diagnosed with diabetes. "Selected insulin products” is defined to include any dosage form, including vials, pumps, or inhalers of any type of insulin.
For purposes of an HSA, the requirements for a high deductible health plan (HDHP) differ depending on the coverage.
For 2024, an HDHP is a plan with an annual deductible of not less than $1,600 for self-only coverage ($1,500 in 2023). The family coverage deductible limit is $3,200 ($3,000 in 2023). Annual out-of-pocket expenses for an HDHP cannot exceed $8,050 in 2024 ($7,500 in 2023) for self-only coverage. For family coverage, the annual out-of-pocket expense limitation is increased to $16,100 ($15,000 in 2023).2 These annual deductible amounts and out-of-pocket expense amounts are adjusted for cost of living. Increases are made in multiples of $50.3
For this purpose, family coverage is any coverage other than self-only coverage.4
The chart below includes the current year’s HDHP limits as well as the limits in place for previous years.
Other Issues Deductible limits for HDHPs are based on a 12 month period. If a plan deductible may be satisfied over a period longer than 12 months, the minimum annual deductible under IRC Section 223(c)(2)(A) must be increased on a pro-rata basis to take into account the longer period.5 An HDHP may impose a reasonable lifetime limit on benefits provided under the plan as long as the lifetime limit on benefits is not designed to circumvent the maximum annual out-of-pocket limitation.6 A plan with no limitation on out-of-pocket expenses, either by design or by its express terms, does not qualify as a high deductible health plan.7 An HDHP may provide coverage for preventive care without application of the annual deductible.8 The IRS has provided guidance and safe harbor guidelines on what constitutes preventive care. Under the safe harbor, preventive care includes, but is not limited to, periodic check-ups, routine prenatal and well-child care, immunizations, tobacco cessation programs, obesity weight-loss programs, and various health screening services. Preventive care may include drugs or medications taken to prevent the occurrence or reoccurrence of a disease that is not currently present.9 For months before January 1, 2006, a health plan would not fail to qualify as a high deductible health plan solely because it complied with state health insurance laws that mandate coverage without regard to a deductible or before the high deductible is satisfied.10 This transition relief only applied to disqualifying benefits mandated by state laws that were in effect on January 1, 2004. This relief extended to non-calendar year health plans with benefit periods of 12 months or less that began before January 1, 2006.11 Out-of-pocket expenses include deductibles, co-payments, and other amounts that a participant must pay for covered benefits. Premiums are not considered out-of-pocket expenses.12 Annual deductible amounts and out-of-pocket expense amounts stated above are adjusted for cost of living. Increases are made in multiples of $50.13 1. IRC § 223(c)(2)(E). 2 Rev. Proc. 2020-32, Rev. Proc. 20215, Rev. Proc. 20224, Rev. Proc. 20233. 3. IRC § 223(g). 4. IRC § 223(c)(5). 5. Notice 2004-50, 2004 CB 196, A4. 6. Notice 2004-50, 2004 CB 196, A-14. 7. Notice 2004-50, 2004 CB 196, A-17. 8. IRC § 223(c)(2)(C). 9. Notice 2004-50, 2004 CB 196, A7; Notice 20043, 2004-1 CB 725. 10. Notice 2004-43, 2004 CB 10. 11. Notice 2005-83, 2005 CB 1075. 12. Notice 2004, 2004-1 CB 269, A-3; Notice 96-53, 1996 CB 219, A-4. 13. IRC § 223(g). |