The Internal Revenue Service (IRS) has released two new Notices surrounding contraception and other preventive care. Coinciding with this, the Department of Labor, Department of Treasury and Department of Health and Human Services (the Departments) issued joint guidance, proposing to amend current Affordable Care Act (ACA) rules on contraceptive care for non-grandfathered plans.
In summary, the Notices take retroactive effect and, among other things, allow over-the-counter (OTC) oral contraception and male condoms to be provided by a qualified high-deductible health plan (HDHP) prior to the deductible without sacrificing eligibility for health savings accounts (HSAs).
The proposed regulations would require preventive care to include certain OTC contraception (including condoms) without cost sharing and without a prescription.
Executive Summary
The guidance sets forth the following:
Proposed regulations. If finalized, the proposed regulations would:
Include a new requirement for non-grandfathered plans to cover certain OTC contraception without cost sharing and without a prescription (proposed effective date for plan years beginning on or after Jan. 1, 2026);
Codify an “exceptions process” for medical management techniques whereby coverage can be sought for preventive health items or services that generally are not covered by the plan, based on a determination of medical necessity by the provider (effective when the final rule becomes effective); and
Include a disclosure requirement that OTC contraception is covered without cost sharing and without a prescription (proposed effective date for plan years beginning on or after Jan. 1, 2026).
IRS Notices. The IRS Notices 2024-75 (opens a new window) and 2024-71 (opens a new window)
both take retroactive effect and provide as follows:
A qualified HDHP may provide preventive care for OTC condoms and oral contraceptives, including, but not limited to, OTC birth control pills and emergency contraception, regardless of whether they are purchased with a prescription, and prior to satisfaction of the minimum annual HDHP deductible (effective for plan years beginning on or after Dec. 30, 2022).
Condoms are eligible for reimbursement as a medical expense under a HSA, health flexible spending account (HFSA) and health reimbursement arrangement (HRA) (effective for plan years beginning on or after Dec. 30, 2022).
All types of breast cancer screenings (including mammograms, MRIs, and ultrasounds) for those not diagnosed with cancer are preventive care (effective retroactively to April 12, 2004).
For those diagnosed with diabetes, continuous glucose monitors are generally treated as preventive care (effective retroactively to July 17, 2019).
Certain insulin products may be provided prior to satisfaction of the HDHP deductible without regard to whether the product is prescribed to treat an individual diagnosed with diabetes or prescribed for the purpose of preventing the exacerbation of diabetes or the development of a secondary condition (effective for plan years beginning after December 31, 2022).
Lockton comment: There is currently no action for plans to take regarding the proposed rules, other than perhaps noting the momentum toward contraceptive care access. HDHPs may consider that the above-listed items set forth in the IRS Notices may be provided without cost share without jeopardizing HDHP status. And, finally, account plans, e.g., HSAs, HRAs, and HFSA, very likely define reimbursable medical expenses by reference to Internal Revenue Code section 213(d) and, therefore, will automatically be able to start reimbursing condoms (which now qualifies as an expense under that section).
Background
In June 2022, the US Supreme Court overturned Roe v. Wade, holding there is no constitutional right to an abortion. This was followed by several Presidential Executive Orders committing to reproductive health care access.
Generally speaking, when a President issues an Executive Order, federal agencies are directed to support the Order. Acting upon orders, the Departments recently issue joint guidance, proposing to amend the ACA rules on contraceptive care for non-grandfathered plans. Tagging along, separately, the IRS issued two new Notices related to preventive care (including contraception) under an HDHP. Whether all or parts of the proposed regulations make it to final form remains to be seen, but the IRS’ Notices addressing contraceptive care (as well as breast cancer screening and glucose monitors) are in effect.
Lockton comment: The proposed rules, if finalized, would be the most significant expansion of contraception coverage under the ACA since 2012, when contraception was first required to be covered. However, this set of proposed rules does not affect previously issued rules that provide exemptions from the contraceptive coverage requirement for entities with moral or religious objections to contraceptive coverage. The more recently issued February 2023 proposed rules that would rescind the moral (but not religious) exemption to the contraceptive coverage requirement are outside the scope of these proposed rules and this Alert.
What is preventive care?
It depends. Preventive care under the ACA must be provided without cost sharing (no deductible, co-pays or coinsurance). It is services that include:
Evidence-based items or services with an A or B rating in the current recommendations of the United States Preventive Services Task Force (Task Force);
Immunizations for routine use in children, adolescents, or adults that have, in effect, a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention;
Evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA) for infants, children, and adolescents; and
Other evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by HRSA for women.
Preventive care has an expanded, meaning under the IRS for purposes of care that may be provided before the HDHP deductible is met (thereby keeping an individual eligible to make HSA contributions). In that case, “preventive care” not only encompasses the above ACA definition, but also the IRS’ initial safe harbor definition provided pre-ACA (in IRS Notice 2004-23) within which it states preventive care includes, but is not limited to:
Periodic health evaluations, such as annual physicals (and the tests and diagnostic procedures ordered in conjunction with such evaluations);
Routine prenatal and well-child care;
Immunizations for adults and children;
Tobacco cessation and obesity weight-loss programs; and
Screening services (there is an extensive list of permissible screening services and tests in an appendix to IRS Notice 2004-23).
ACA proposed regulations deepen affordable contraceptive care access
The proposed regulations, if finalized, would provide unprecedented access to contraceptive care in three ways:
A change to the “reasonable management techniques;”
The ability to obtain OTC contraception without a prescription and without cost sharing, provided a recommendation or guideline does not require a prescription; and
disclosure requirements in the plan’s online self-service transparency tool.
Reasonable medical management techniques
Current regulations permit plans and issuers to use reasonable medical management techniques (MMT) to determine the frequency, method, treatment, or setting for coverage of a recommended preventive service, to the extent not specified in the applicable recommendation or guideline. The Departments have expressed (see Alert here (opens a new window)) that they generally do not consider MMTs to be reasonable absent the availability of an “exceptions process.” In addition, they continue to receive complaints of potential violations related to the application of MMTs that are not reasonable, including failing to provide a proper exceptions process. Consequently, the proposed rule would codify requirements for an exceptions process that would accommodate any individual for whom a particular item or service would not be medically appropriate. The exceptions process would not require an entity with an exemption to provide coverage of an item or service falling under their exemption.
Lockton comment: Here’s an example from the preamble. If a plan typically provides coverage without cost sharing for only a generic version of a recommended preventive service, and an individual experiences side effects from the covered generic version, the exceptions process could be used to obtain the brand-name version without cost sharing (even though the plan typically doesn’t provide such coverage or provides it with cost sharing). Part of this process would involve the attending provider’s determination that the brand name version is medically necessary for the individual.
Over-the-counter contraceptives without a prescription, without cost sharing
The Departments propose to require that plans cover, without requiring a prescription and without imposing cost sharing requirements, recommended contraceptive items that are available OTC and for which the applicable recommendation or guideline does not require a prescription. Associated with this, the Departments propose that, in order for MMTs to be considered reasonable, plans would be required to utilize a therapeutic equivalence approach for recommended contraceptive drugs and drug-led combination products (both defined).
Coverage of OTC contraceptives may sound familiar because the Departments’ previously issued guidance provides that preventive health care items generally available OTC to patients (such as folic acid and certain contraceptive products, including contraceptive sponges, spermicides, and emergency contraception (levonorgestrel)) must be covered without cost sharing, but only when prescribed by a health care provider. The proposed rule would change that by eliminating the prescription requirement (unless a recommendation or guideline provides otherwise).
Lockton comment: Like a flashback to COVID-19 diagnostic tests, many of the same issues may arise in implementing cost-free OTC contraceptive items without a prescription, e.g., potential for fraud and abuse, stockpiling, waste, and price gauging, etc. Also discussed in the preamble to the regulations, nothing here would require coverage or a waiver of cost share if the OTC item is sought out-of-network (OON). In other words, a plan that has a network of providers that can provide OTC contraceptive items would not be required to provide coverage, or waive cost sharing, for items provided by an OON provider. For example, if a plan has a network of pharmacies (including mail-order pharmacies) that can provide OTC contraceptive items without a prescription, the plan would not be required to provide coverage (nor waive cost sharing) if an enrollee obtains the covered item from an OON pharmacy or retailer.
Promoting awareness through disclosure
As part of the transparency in coverage rules, plans must have an internet-based, self-service tool that may be used to determine cost share for covered items and services. The proposed rule would require the self-service tool to provide a statement explaining that the OTC contraceptive is covered without a prescription and without cost sharing. It also requires a phone number and internet link where more information may be obtained.
IRS addresses preventive care and HDHPs
Tax-free condoms and other preventive care
Employers offering an HDHP option to employees may now rest assured that, regardless of the whether the ACA regulations become final, certain contraceptive coverage, breast screenings besides mammograms, glucose monitors and selected insulin products may be provided before an individual hits their annual deductible under an HDHP design without jeopardizing HSA-compatible status.
OTC oral contraceptives without a prescription
Preventive care for purposes of being a qualified HDHP includes all benefits for OTC oral contraceptives (for a covered individual potentially capable of becoming pregnant), including, but not limited to, OTC birth control pills (e.g., Opill) and emergency contraception (opens a new window) (e.g., levonorgestrel)). A prescription is not required to purchase an item.
Lockton comment: As simple as the new rule sounds, it is not without complexities. The preamble to the proposed regulations describes various comments received from a “request for information (opens a new window)” from the Departments regarding the pros, cons and difficulties of a such a rollout and may remind readers of some of the issues stemming from free COVID-19 tests (e.g., stockpiling, waste, fraud and abuse). In fact, learning from the challenges in rolling out free diagnostic tests during the COVID-19 pandemic will certainly help with the implementation process. Should plans figure out how this would rollout, they can do so without compromising HDHP status.
Male Condoms
Male condoms, regardless of whether they are purchased with a prescription and regardless of the gender of the individual covered under the HDHP who purchases them, may be provided as preventive care under a qualified HDHP. If not completely free under the HDHP, the participant may seek tax-free reimbursement through their HSA. Or, for those with non-HDHP coverage, should OTC contraception remain with a cost, condoms may be reimbursed through a HFSA or HRA (as set forth in IRS Notice 2004-71).
Lockton comment: The IRS is clear in its Notice 2024-75 that the guidance regarding preventive care and HDHPs does not apply to any other male contraception, such as male sterilization.
Breast cancer screenings
A two-decade old IRS notice provides that a breast cancer screening is treated as preventive care for HDHP purposes but only provides a “mammogram” on its list of examples of such screenings. Breast cancer screening recommended with an “A” or “B” rating by the USPSTF (which must be covered without cost sharing under ACA rules) is generally limited to mammography. Pursuant to Notice 2024-75, women may receive other forms of breast cancer screenings under an HDHP such as ultrasounds, MRIs, and similar screenings.
Continuous glucose monitors do not include smartwatches
Building on Notice 2019-45, the IRS states in 2024-75 that continuous glucose monitors are preventive care for purposes of a qualified HDHP in the same circumstances as other glucometers, provided the continuous glucose monitor is measuring glucose levels using a similar detection method or mechanism to other glucometers. The IRS cautions that most glucose monitors will need to pierce the skin, therefore, a smartwatch app claiming to monitor glucose in some other fashion will not be preventive.
The IRS also acknowledges that a glucose monitor will not be preventive if it has non-medical functions, unless they are limited to minor functions (e.g., clock and date functions). If it has additional medical functions, those functions also would need to be preventive care. For example, a monitor that also delivers insulin would be preventive.
Select insulin products
An HDHP may provide benefits for selected insulin products before an individual satisfies the minimum annual deductible. This is true without regard to whether the insulin product is prescribed to treat an individual diagnosed with diabetes or prescribed for the purpose of preventing the exacerbation of diabetes or the development of a secondary condition.
Conclusion and next steps
It is clear there is an aura of access from the Departments surrounding contraceptive care. Comments are requested and most certainly will be received with regard to the proposed regulations. The direction things are heading should be well-noted, but the implementation process and ability to finalize the rules remain to be seen.
That being said, the new IRS Notices are currently effective. Therefore, should a self-funded HDHP choose to implement the preventive care set forth in IRS Notice 2024-75, participants will be able to continue contributions to their HSAs.
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 Consulting group are not privileged under the attorney-client privilege.
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