Congress, as part of a typically massive appropriations bill, has extended from April 1, 2022, to Dec. 31, 2022, the ability of health savings account-compatible high-deductible health plans (HDHPs) to pay for telehealth visits below the HDHP’s high deductible without jeopardizing the ability of enrollees to make health saving account (HSA) contributions.
Lockton comment: HDHPs are not permitted to pay benefits, other than for preventive care or for “excepted benefits,” like dental and vision care, until the member has met a federally set minimum high deductible. Most telehealth care would be subject to the deductible requirement but for this Congressional action, an accommodation designed to allow HDHP sponsors to permit members to obtain telehealth primary care during the COVID-19 pandemic without losing the ability to make HSA contributions.
Congress had earlier provided this accommodation for the period from Jan. 1, 2020, through the last day of the plan year beginning in 2021 (so, to Dec. 31, 2021, for calendar year plans). The accommodation is not mandatory; HDHPs may choose whether to implement the extended accommodation or not.
What’s with the gap between Jan. 1 and March 31, 2022?
Citing concerns that an extension of the accommodation with a retroactive effective date to Jan. 1, 2022, would require many HDHPs – if they took advantage of the extension – to go back and re-process telehealth claims incurred between Jan. 1 and the date of the bill’s passage, Congress chose to start the extension on April 1, 2022, leaving for many plans (including calendar year plans) a gap of up to three months between the expiration of the initial accommodation and the beginning of the extension.
Here’s how that gap plays out:
For non-calendar year HDHPs with 2021 plan years ending on or after March 31, 2022 (e.g., an HDHP whose current plan year began July 1, 2021, and ends June 30, 2022), the new extension leaves no gap; those plans, if currently allowing for the original accommodation, can simply leave in place the waiver of the deductible for telehealth claims, but not beyond Dec. 31, 2022.
Calendar year HDHPs, and non-calendar year HDHPs whose 2021 plan year ended before March 31, 2022, will have a gap. If they – as they should have done – turned off the blanket deductible waiver for telehealth visits occurring after the end of the 2021 plan year, their carrier or third-party administrator can simply (although that’s easy for us to say) turn the deductible waiver back on for telehealth care received on or after April 1, 2022, and before Dec. 31, 2022.
But what about calendar year HDHPs (and non-calendar year HDHPs with 2021 plan years ending before March 31, 2022) that, anticipating an extension of the telehealth accommodation, never did turn off the deductible waiver during the gap, that is, for the months between the end of their 2021 plan year and April 2022?
We hope few or no employers did that, but if they did, well … it’s complicated.
Technically, HSA contributions made for months during the gap shouldn’t have been made, because the plan wasn’t an HDHP for those months. As a practical matter, however, we’re not sure how much HDHP sponsors or the IRS should care, for three reasons.
First, the telehealth accommodation is a very short-term accommodation.
Second, for members who made contributions in the gap months when they should not have, but are with the employer and HSA eligible on Dec. 1, there’s a quirky rule that arguably comes to the rescue. Under this rule, called the “Dec. 1 rule,” if an HDHP enrollee is HSA-eligible on Dec. 1, the enrollee is deemed to have been HSA eligible for the entire calendar year. This quirky rule arguably, at least as a practical matter, solves the “gap problem” for HDHP enrollees who can take advantage of it.
Lockton comment: There’s another quirky aspect to the “Dec. 1 rule” that requires the member, in order for the rule to apply, to remain HSA eligible for the entire ensuring calendar year. But that aspect of the rule receives scant attention, and we won’t dwell on it here. It receives scant attention in part because if an employee leaves the employer, the employer will never know whether the employee remained HSA eligible or not, and in any event, employers are allowed to permit HSA contributions based on the facts known to them at the time.
Third, even for HDHP enrollees who made HSA contributions in the gap period, when they should not have, and are not HSA eligible on Dec. 1 (they terminated employment earlier or switched to non-HDHP coverage in the interim), there’s a potential solution. If the enrollees don’t make the maximum monthly contribution for months after March, as a practical matter they should be able to recharacterize the gap period contributions as contributions attributable to later periods.
Example: An HDHP member enrolled in self-only coverage in 2022 accrues the right to make an HSA contribution of approximately $304 per month for each month the member remains HSA eligible. Let’s say the member contributed $150 per month in their “gap period,” from January through March, contributions the employer should not have allowed.
If the member continues to contribute $150 per month for, say, April through July, and then terminates employment, the member would have legitimately accrued the right to make approximately $1,216 in HSA contributions for the months of April through July ($304 per month). But the member only contributed $600 for that four-month period, leaving room to have contributed an additional $616. If the $450 in contributions made during the gap period are added to the contributions made for the four months the member was actually eligible to make HSA contributions, that total of $1,050 is still less than the $1,216 maximum contribution the member could have made for that four-month period. #NoHarmNoFoul.
There are other potential scenarios too, of course, that don’t work out so well (e.g., the member ceases to be HSA eligible in April, or made the maximum contributions for (in our example) April through July so that there’s no room to recharacterize the gap period contributions). But we hope that the making of gap period contributions was not a chronic issue, and are also optimistic that the IRS will not endeavor to aggressively enforce the HDHP/HSA rules with respect to potential gap period contributions.
Will employers turn on the deductible waiver again?
Congress hasn’t required HDHP sponsors to extend the deductible waiver for telehealth care, and we suspect some sponsors, particularly calendar year plan sponsors, won’t want to turn the deductible waiver back on in the middle of the 2022 plan year, risking the claim administration mistakes and taking on the employee communication challenge (i.e., “We’ll pay, without regard to your deductible, for your telehealth care received after March, but not after the end of this year, and oh by the way we’re not paying for it between Jan. 1 and March 31 either.”).
Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.