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Compliance Briefing Center

Regulatory Updates

{Making it Easier for You
to Manage Benefits}

Unintentional Consequences for HSA Participants

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Some state insurance mandates run afoul of federal legislation when it comes to federally-regulated Health Savings Accounts (HSAs). The problem? Some state mandates do not conform to federal definitions for preventive services allowable in an otherwise HSA-qualified high-deductible health Plan (HDHP). A recent example of this is male sterilization, or vasectomies, which some states have mandated be covered without cost-sharing. Because federal preventive services do not consider male sterilization or male contraceptives to be covered without cost-sharing, this renders some state’s HDHPs to not be HSA-qualified. This eliminates the ability for those covered by such plans to contribute to an HSA.

Background
In order to be eligible to establish HSAs, an individual must be covered by an HDHP that satisfies certain requirements with respect to minimum deductibles and maximum out-of-pocket expenses, plus have no disqualifying health coverage. That means the health coverage may not begin paying benefits until the statutory minimum deducible is met for the HDHP.

However, preventive care may be paid by the insurer prior to the HDHP reaching the statutory minimum deductible. IRS Notices 2004-23 and 2004-50 provide guidance on preventive care benefits that can be provided by an HDHP.

Preventive Care
In IRS Notice 2018-12 (see below) the IRS first clarifies that neither male sterilization nor male contraception, covered without a deductible or with a deductible below the minimum deductible for an HDHP, will qualify for HSA preventive care purposes and is not an HSA-eligible HDHP.

State mandates in Vermont, Maryland and Illinois delivered first-dollar coverage for male sterilization or male contraception without a deductible making tens of thousands of taxpayers ineligible to establish or contribute to an HSA. In turn, WageWorks sent a comment letter to Congress asking for relief from this seemingly unintentional consequence.

Limited Transition Relief
IRS Notice 2018-12 first reiterates that a health plan providing benefits for male sterilization or contraceptives, without a deductible or a deductible below the minimum deductible is not an HDHP for HSA purposes. Any individual who is not covered by an HDHP is an ineligible individual and may not establish or deduct contributions to an HSA. This Notice provides transition relief for those ineligible individuals covered by seemingly HSA-eligible health insurance coverage. Individuals with Insurance coverage that affords male sterilization or male contraceptives before the statutory minimum deductible is met may still contribute to an HSA for periods before 2020.

States are responding to this transition guidance—already Maryland and Illinois have passed laws fixing the issue so that HSA-qualified plans are available to affected individuals. And by 2020 all States will have to follow all the federal regulations regarding HDHPs in order to offer coverage compatible with HSA ownership.