COVID-19 testing and treatment are now considered qualifying expenses for health savings accounts (HSA), the IRS said Wednesday.
To facilitate the nation’s response to the Coronavirus (COVID-19) pandemic, the guidance provides that, “a health plan that otherwise satisfies the requirements to be a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code (Code) will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP.”
Therefore, an individual covered by the HDHP will not be disqualified from being an eligible individual who may make tax-favored contributions to an HSA.
“The actual cost of the testing and treatment is determined by your health plan, including the amount and format,” according to a blog post from HSA provider Lively. “If you have not yet reached your deductible, the costs will count towards reaching your deductible maximum. Similarly, if you have not yet reached your out-of-pocket maximum, these costs will count towards reaching your out-of-pocket maximum.”
The IRS routinely issues guidance that relaxes reporting and tax regulations in the wake of national crises—most notably hurricanes and tropical storms.
“Part of the response to COVID-19 is removing barriers to testing for and treatment of COVID-19,” the IRS added. “Due to the nature of this public health emergency, and to avoid administrative delays or financial disincentives that might otherwise impede testing for and treatment of COVID-19 for participants in HDHPs, this notice provides that all medical care services received and items purchased associated with testing for and treatment of COVID-19 that are provided by a health plan without a deductible, or with a deductible below the minimum annual deductible …will be disregarded for purposes of determining the status of the plan as an HDHP.”
Background
Section 223 of the Code permits eligible individuals to deduct contributions to HSAs.
Among the requirements for an individual to qualify as an eligible individual under section 223(c)(1) is that the individual be covered under an HDHP and have no disqualifying health coverage.
As defined in section 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.
Relief
Due to what the IRS said is the unprecedented public health emergency posed by COVID-19, and the need to eliminate potential administrative and financial barriers to testing for and treatment of COVID-19, a health plan that otherwise satisfies the requirements to be an HDHP under section 223(c)(2)(A) will not fail to be an HDHP merely because the health plan provides 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, the individuals covered by such a plan will not fail to be eligible individuals under section 223(c)(1) merely because of the provision of those health benefits for testing and treatment of COVID-19.
This guidance does not modify previous guidance with respect to the requirements to be an HDHP in any manner other than with respect to the relief for testing for and treatment of COVID-19.
Vaccinations continue to be considered preventive care under section 223(c)(2)(C) for purposes of determining whether a health plan is an HDHP.
This notice provides flexibility to HDHPs to provide health benefits for testing and treatment of COVID-19 without application of a deductible or cost-sharing. Individuals participating in HDHPs or any other type of health plan should consult their particular health plan regarding the health benefits for testing and treatment of COVID-19 provided by the plan, including the potential application of any deductible or cost-sharing.
For further information on the provisions of this notice, contact Jennifer Solomon at (202) 317-5500 (not a toll-free number).