8828 / What is a high deductible health plan for purposes of an HSA?

Editor’s Note: In response to the COVID-19 pandemic, the CARES Act allowed HDHPs to cover the cost of telehealth services without cost to participants before the HDHP deductible is satisfied. HDHPs providing telehealth coverage do not jeopardize their status as HDHPs. Plan members similarly retained 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 relief 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 did 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 applied between January 2022 and March 2022. 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 existed for non-calendar year plans from January 1, 2023 until the date that the plan year began). The ability to provide pre-deductible remote health services is optional for employers. At the last minute, a provision that would have extended telehealth coverage was stripped from the 2025 American Relief Act that was signed into law late in December of 2024.  As a result, as of January 1, 2025 HDHPs are no longer permitted to reimburse telehealth and remote healthcare services on a pre-deductible basis to participants with health savings accounts (HSAs).

In Notice 2023-37, the IRS confirmed that that the special rules allowing pre-deductible coverage of COVID-related testing and treatment will end as of December 31, 2024. The guidance also states that the preventive care safe harbor does not include COVID-19 testing as of July 24, 2023.

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.

The requirements for a high deductible health plan (HDHP) differ depending on whether individual or family coverage is provided. In this context, family coverage includes any coverage other than self-only coverage.¹

For 2025, an HDHP is a plan with an annual deductible of not less than $1,650 for self-only coverage ($1,600 in 2024). The family coverage deductible limit is $3,300 in 2025 ($3,200 in 2024). Annual out-of-pocket expenses for an HDHP cannot exceed $8,300 in 2025 ($8,050 in 2024) for self-only coverage. For family coverage, the annual out-of-pocket expense limitation is increased to $16,600 in 2025 ($16,000 in 2024).² These annual deductible amounts and out-of-pocket expense amounts are adjusted annually for cost of living.³ Increases are made in multiples of $50.

Deductible limits for HDHPs are based on a 12-month period. If a plan deductible may be satisfied over a period longer than twelve months, the minimum annual deductible under IRC Section 223(c)(2)(A) must be increased on a pro-rata basis to take the longer period into account.⁴

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.⁵ 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.⁶ Beginning in 2016, the CMS has provided guidance stating that the self-only limitation applies to each individual, regardless of whether the individual is enrolled in self-only or family coverage. This is the case even if the limitation for self-only coverage is below the family deductible limit. Family coverage can continue to be offered as long as the self-only limitation is applied separately to each individual under the plan.⁷

An HDHP may provide preventive care coverage without application of the annual deductible.⁸ The IRS has provided guidance and safe harbor guidelines on what constitutes preventive care. Pursuant to the IRS 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

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Planning Point: In 2020, the IRS announced that high deductible health plans can cover costs associated with COVID-19. HDHPs can cover coronavirus-related testing and equipment needed to treat the virus. Generally, HDHPs are prohibited from covering certain non-specified expenses before the covered individual’s deductible has been met. Certain preventative care expenses are excepted from this rule. HDHPs will not jeopardize their status if they pay coronavirus-related expenses before the insured has met the deductible, and the insured will remain HSA-eligible. The guidance applies only to HSA-eligible HDHPs. Participants in HDHPs should pay attention to IRS guidance in specific future situations.¹⁰

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Notice 2013-57 clarifies that a health plan will not fail to qualify as an HDHP merely because it provides preventative services under the ACA without requiring a deductible.¹¹

For months before January 1, 2006, a health plan would not fail to qualify as an HDHP solely based upon its compliance with state health insurance laws that mandate coverage without regard to a deductible or before the high deductible is satisfied.¹² 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 twelve months or less that began before January 1, 2006.¹³

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.¹⁴