March 20, 2018
Recently, the IRS gave employees in Illinois, Maryland, and Vermont temporary relief from potential health savings account (“HSA”) tax penalties in Notice 2018-12.
Those three states have laws on the books that mandate that insurance policies cover male sterilization and/or contraception without cost sharing. The problem? An individual that wants to contribute to an HSA must be enrolled in a high deductible health plan (“HDHP”) and that HDHP generally cannot cover costs below the deductible. However, there is an exception for preventive care services.
Until recently, the IRS had not said whether male sterilization (like a vasectomy) or male contraceptives were considered preventive care. Female contraceptives, which are required to be covered as preventive care under the Affordable Care Act, are HSA preventive care services.
However, the IRS has now said that male sterilization and contraceptives are not HSA preventive care services. This means that employees who enrolled in HDHPs that are required to cover these services would not be eligible to contribute to an HSA. Doing so would make them subject to excess contribution penalties. It does not matter if the employees are male or female or whether the employee (or dependent) actually has a procedure or obtains a contraceptive under the plan. The mere fact that the plan covers these items and services is enough.
Recognizing that employees do not have control over state laws, the IRS said that it will not enforce this rule before 2020. In other words, affected employees can still contribute to an HSA through 2019. This is to give states time to make changes to their laws to exempt HDHPs from the requirement to cover male sterilization and contraceptives. Alternatively, Congress could amend the tax code to expressly add these items and services as preventive services.
Takeaway. Employers with HDHP policies issued in those states need to let employees know about this development so they can plan accordingly. They may also want to contact their state legislators to encourage them to modify their laws so that they can continue to offer these plans. Alternatively, they could contact their federal legislators to get them to add male sterilization/contraceptives to the list of preventive services.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.