IRS Announces That COVID-19 Rules for High Deductible Health Plans Expire After 2024

(Parker Tax Publishing July 2023)

The IRS issued a notice announcing that, in response to the end of the COVID-19 public health emergency, the relief provided in Notice 2020-15 under which a high deductible health plan can provide benefits for medical care services and items purchased related to testing for and treatment of COVID-19 without satisfying the minimum deductible requirement, applies only with respect to plan years ending on or before December 31, 2024. The IRS also clarified that the preventive care safe harbor, as described in Notice 2004-23, does not include testing for COVID-19, effective as of June 23, 2023, the date of issuance of the notice. Notice 2023-37.

Background

Code Sec. 223 permits eligible individuals to deduct contributions to Health Savings Accounts (HSAs). 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.

Generally, under Code Sec. 223(c)(2)(A), an HDHP is not permitted to provide benefits for any year until the minimum deductible for that year is satisfied. However, Code Sec. 223(c)(2)(C) provides a safe harbor for the absence of a deductible for preventive care. Under Code Sec. 223(c)(2)(C), a plan will not fail to be treated as an HDHP by reason of failing to have a deductible for "preventive care." Therefore, an HDHP may provide preventive care benefits without a deductible, or with a deductible below the minimum annual deductible otherwise required by Code Sec. 223(c)(2)(A). To be a preventive care benefit as defined for purposes of Code Sec. 223, the benefit must either be described as preventive care for purposes of Section 1861 of the Social Security Act (SSA) or be determined to be preventive care in guidance issued by the IRS. Notice 2013-57 provides that a health plan will not fail to qualify as an HDHP merely because it provides without a deductible the preventive care health services required under Section 2713 of the Public Health Services (PHS) Act to be covered without cost sharing by a group health plan or a health insurance issuer offering group or individual health insurance coverage.

In March 2020, the IRS issued Notice 2020-15. The notice provides that due to the public health emergency posed by COVID-19, and the need to eliminate potential barriers to testing for and treatment of COVID-19, 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 merely because the health plan provides benefits for medical care services and items purchased related to testing for and treatment of COVID-19 prior to the satisfaction of the applicable minimum deductible. As a result, individuals covered by such a plan will not fail to be eligible individuals under Code Sec. 223(c)(1) merely because of the provision of those health benefits prior to the satisfaction of the applicable minimum deductible.

On January 31, 2020, the Secretary of Health and Human Services (HHS) declared that a nationwide public health emergency existed as of January 27, 2020, as a result of COVID-19. This declaration was continually renewed by the HHS Secretary, most recently effective February 11, 2023. On April 10, 2023, President Biden signed a resolution ending the national emergency under the National Emergencies Act.

Notice 2023-37

On June 23, the IRS issued Notice 2023-37 to announce that, with the end of the COVID-19 National Emergency, the relief described in Notice 2020-15 is no longer needed. Accordingly, the IRS modified Notice 2020-15 to provide that the relief described in Notice 2020-15 applies only with respect to plan years ending on or before December 31, 2024. For subsequent plan years, an HDHP is not permitted to provide health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (for self-only or family coverage) for an HDHP, except as otherwise provided in Notice 2023-37.

The IRS noted that Notice 2004-23 provides that preventive care under Code Sec. 223(c)(2)(C) includes, but is not limited to, screening services as specified in the Appendix to Notice 2004-23. However, preventive care does not generally include any service or benefit intended to treat an existing illness, injury, or condition. As part of the preventive care safe harbor, the Appendix to Notice 2004-23 includes Infectious Diseases Screening Services for certain specified infections. Screenings for common and episodic illnesses, such as the flu, are not included on the list. Accordingly, the IRS said that it is of the view that COVID-19 differs from the types of infectious diseases included in the preventive care safe harbor as specified in Notice 2004-23, and Notice 2023-37 clarifies that the preventive care safe harbor as described in Notice 2004-23 does not include screening (i.e., testing) for COVID-19, effective as of June 23, 2023, the date of publication of Notice 2023-37.

In addition, the IRS noted that on April 13, 2023, the Departments of Labor, HHS, and the Treasury issued FAQs entitled, FAQs About Affordable Care Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 59 (FAQs Part 59), which provided initial guidance on how the decision in Braidwood Management Inc. v. Becerra, Civil Action No. 2:20-cv-00283-O (N.D. Tex. 2023), affected the requirement to cover preventive services without cost sharing under PHS Act Section 2713. Question and Answer 7 of FAQs Part 59 states that, until further guidance is issued, items and services recommended with an "A" or "B" rating by the United States Preventive Services Task Force (USPSTF) on or after March 23, 2010, will be treated as preventive care for purposes of Code Sec. 223(c)(2)(C), regardless of whether these items and services must be covered, without cost sharing, under PHS Act Section 2713.

According to the IRS, consistent with the position taken in Question and Answer 7 of FAQs Part 59, Notice 2023-37 provides that items and services recommended with an "A" or "B" rating by the USPSTF on or after March 23, 2010, are treated as preventive care for purposes of Code Sec. 223(c)(2)(C), regardless of whether these items and services must be covered, without cost sharing, under PHS Act Section 2713. Accordingly, if COVID-19 testing were to be recommended with an "A" or "B" rating by the USPSTF, then that testing would be treated as preventive care under Code Sec. 223(c)(2)(C), regardless of whether it must be covered, without cost sharing, under PHS Act Section 2713.

For a discussion of the preventive care exception for high deductible health plans, 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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