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Compliance Briefing Center

Regulatory Updates

{Making it Easier for You
to Manage Benefits}

Health Savings Accounts Update

 

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The Maryland legislature passed, and Governor Larry Hogan signed into state law, a bill that removed certain obstacles for those with Health Savings Accounts (HSAs) to contribute to their individual and family HSAs. Prior to this new law, HSA beneficiaries in Maryland were in a difficult position due to a Maryland insurance law that required male sterilization to be treated as preventive care. Because of this law, HSA participants were not considered to have an HSA compatible high-deductible health plan (HDHP) because the HDHP covered male sterilization with first-dollar coverage.

Background
In order to be eligible to contribute to an HSA, an individual must be covered by an HSA compatible HDHP. HSA compatible HDHPs may only cover preventive care on a first-dollar basis and may not otherwise cover medical care prior to an HDHP’s deductible having been met. First dollar health insurance coverage for preventive care has always been a hallmark of HSAs and was a large part of the Affordable Care Act (ACA). The IRS has from time to time provided a list of services and products considered to be preventive care. However, the IRS does not consider male sterilization to be preventive care.

As happens in other tax matters, state and federal rules sometimes clash. A few states, including California, Illinois, Vermont, and Maryland, mandate first-dollar insurance coverage of male sterilization. This creates a problem for individuals who wish to be covered by an HSA compatible HDHP because the IRS does not view male sterilization as preventive care for HDHP purposes. This conflict between state and federal law has often meant that HSA owners do not have the applicable coverage to be able to contribute to their HSAs.

For residents of Maryland, the problem was recently solved with state legislation exempting HDHPs from the male contraception requirements. Other states may follow Maryland’s lead; however, the problem for HSA owners in those states may be the delay of a solution because of the limitations of legislative calendars.

Transition Relief
The IRS and the Treasury Department stepped in with transition relief for periods before 2020. Although they are unwilling to recognize state laws as applying to federal regulations, IRS Notice 2018-12 allows HSA beneficiaries to contribute to their HSAs regardless of whether their underlying HDHP allows for male sterilization prior to reaching the statutory deductible for HSAs.

For these periods before 2020, an individual will not be treated as failing to qualify as an eligible individual merely because the individual is covered by a health insurance policy or arrangement that fails to qualify as an HDHP solely because it provides (or provided) coverage for male sterilization or male contraceptives without a deductible or with a deductible below the minimum deductible for an HDHP.