High-Deductible Health Plans Can Cover Coronavirus Costs

(Parker Tax Publishing March 2020)

In recent guidance, the IRS advised that high-deductible health plans (HDHPs) can pay for 2019 Novel Coronavirus-related testing and treatment without a deductible, or with a deductible below the minimum deductible (self only or family), without jeopardizing their status. Thus, an individual with an HDHP that covers these costs may continue to contribute to a health savings account. Notice 2020-15.

Background

Code Sec. 223 permits eligible individuals to deduct contributions to a health savings account (HSA). Notice 2004-2, Q&A-19 provides that tax-favored contributions may also be made on behalf of eligible individuals by their employers. Among the requirements for an individual to qualify as an eligible individual under Code Sec. 223(c)(1) is that the individual be covered under a high-deductible health plan (HDHP) and have no disqualifying health coverage. As defined in Code Sec. 223(c)(2), an HDHP is a health plan that satisfies certain requirements, including requirements with respect to minimum deductibles and maximum out-of-pocket expenses.

HDHPs and the Provision of COVID-19 Testing and Treatment Benefits

To facilitate the nation's response to the 2019 Novel Coronavirus (COVID-19), the IRS issued Notice 2020-15, which provides that, until further guidance is issued, a health plan that otherwise satisfies the requirements to be an HDHP under Code Sec. 223(c)(2)(A) will not fail to be an HDHP under Code Sec. 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Therefore, an individual covered by the HDHP will not be disqualified from being an eligible individual under Code Sec. 223(c)(1) who may make tax-favored contributions to a health savings account (HSA).

According to Notice 2020-15, health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for, or treatment of, COVID-19 before plan deductibles have been met. The IRS also noted that, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.

Notice 2020-15 does not modify previous guidance with respect to the requirements to be an HDHP in any manner other than with respect to the relief for testing for and treatment of COVID-19. Vaccinations continue to be considered preventive care under Code Sec. 223(c)(2)(C) for purposes of determining whether a health plan is an HDHP. Individuals participating in HDHPs or any other type of health plan should consult their particular health plan regarding the health benefits for testing and treatment of COVID-19 provided by the plan, including the potential application of any deductible or cost sharing.

Notice 2020-15 applies only to HSA-eligible HDHPs. The IRS noted that employees and other taxpayers in any other type of health plan with specific questions about their own plan and what it covers should contact their plan.

For a discussion of the preventative-care exception to HDHPs, see Parker Tax ¶81,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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