By: HUB’s EB Compliance Team

The IRS has expanded the list of items that may be covered on a first-dollar basis under a high deductible health plan (“HDHP”) to help treat certain chronic health conditions. This HDHP guidance is helpful for employers whose employees may have certain chronic conditions.

Background

An HDHP is a health plan that satisfies certain requirements for minimum deductibles and maximum out-of-pocket expenses. Generally, an HDHP may not provide benefits for any year until the minimum deductible for that year is satisfied. Often, HDHPs are paired with health savings accounts (“HSA”).

This means that, with limited exceptions, such as specifically-defined preventative care coverage, individuals are broadly required to absorb all first dollar medical costs before HDHP coverage can begin. HSA critics have long-complained that this requirement unfairly impacts individuals with certain chronic ailments. This guidance is a step toward addressing that concern.

The Guidance

In Notice 2019-45, the IRS included the following list of prescription drugs and medical devices that can be covered before the participant reaches the deductible if they have been diagnosed with the applicable condition listed below:

Preventive Care for Specified Conditions For Individuals Diagnosed with
Angiotensin Converting Enzyme (ACE) inhibitors Congestive heart failure, diabetes, and/or coronary artery disease
Anti-resorptive therapy Osteoporosis and/or osteopenia
Beta-blockers Congestive heart failure and/or coronary artery disease
Blood pressure monitor Hypertension
Inhaled corticosteroids Asthma
Insulin and other glucose lowering agents Diabetes
Retinopathy screening Diabetes
Peak flow meter Asthma
Glucometer Diabetes
Hemoglobin A1c testing Diabetes
International Normalized Ratio (INR) testing Liver disease and/or bleeding disorders
Low-density Lipoprotein (LDL) testing Heart diseases
Selective Serotonin Reuptake Inhibitors (SSRIs) Depression
Statins Heart disease and/or diabetes

Here are the three key points about this list:

  1. It is exclusive. Only those items listed in the left hand column can be covered first-dollar. Further, they can only be covered first-dollar if the covered person has the condition in the right hand column.
  2. It is permissive. A plan is not required to cover these items on a first-dollar basis. The IRS specifically said these are not required preventive care services that plans must cover as mandated under the Affordable Care Act. However, a plan now has the flexibility to cover all, some, or none of these new preventive care items before the plan’s deductible is reached for employees or dependents with the specified conditions.
  3. It is effective This change is effective as of July 17, 2019. Employers could implement this now (although there are some hurdles - see below under “What to Do Next”).

IRS Rationale

This guidance was released, in part, in response to the Executive Order released last month. Historically, treatment of a current condition was not viewed as “preventive” by the IRS. However, in the Notice, the IRS says that keeping these conditions under control helps prevent further, more expensive secondary conditions from developing.

What to Do Next

An employer that wants to expand the range of covered preventive services should keep a few points in mind.

  1. Update plan document: The employer must work with its insurer (for insured plans) or plan document provider (for self-funded plans) to update the plan document. Current group health plan documents typically include restrictive language intended to satisfy earlier IRS standards for HSA operation.
  2. Summary of Benefits and Coverage: Employers will likely require an updated summary of benefits and coverage (“SBC”). One of the mandated SBC examples includes an individual managing his Type 2 Diabetes and describes the costs involved. If a plan adopts the changes related to diabetes, then that example in an existing SBC will be out of date. Other aspects of the SBC may also require changes. The updated SBC would need to be distributed at least 60 days before the change is effective. However, the 60 day advance notice SBC rule can be avoided if the employer waits until the next plan year to make the change.
  3. ERISA-directed disclosures: The employer must update any summary plan descriptions to include these new services. Most employers will use a summary of material modification (“SMM”). Since changes represent benefit improvements, the employer does not have to issue the SMM until 210 days following the end of the plan year, although most employers will want to communicate the changes sooner.
  4. Plan enrollment implications: A plan that implements this option during the plan year (rather than at renewal/the beginning of the plan year) may be giving participants who are not in the HDHP an opportunity to enroll. Under applicable cafeteria plan rules, a significant enhancement of coverage can give unenrolled employees the right to enroll. Since this could be seen as a significant enhancement to an existing plan, it likely gives rise to an election change opportunity. Whether the enhancement is significant is something employers should discuss with counsel.
  5. Insurance Carrier/TPA Approval: Employers holding insured coverage must first obtain carrier approval for the proposed change and then incorporate the change in its insurance contract. Depending on specific policy terms, such a change might increase the premium. For a self-funded plan, the third party administrator would need to have its systems set up to accommodate this change.
  6. Medical Trend: Self-funded plan sponsors will want to examine the particular dynamics of their plan population to see if covering one or more of these new preventive services could improve overall medical trend factors (keeping in mind HIPAA’s limitations on the uses of health information). Arguably, covering such services on a first-dollar basis should mitigate larger plan expenses. (Generally, insured employers would not hold access to the PHI used to run such analysis.)

As a result of these considerations, employers may reasonably prefer waiting to implement any changes until the next plan year/renewal, rather than rush through a mid-year change. In particular, given the time of year and the above compliance considerations, it would be difficult for a calendar year plan to make this change much before renewal at this point.

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.