On July 17, 2019, the Internal Revenue Service (IRS) and the Department of the Treasury in Notice 2019-45 announced the expansion of preventive care benefits under qualifying high-deductible health plans (HDHPs). This expansion allows individuals to retain their eligibility to make contributions to health savings accounts (HSA) when covered under HDHPs that provide for first-dollar coverage for certain chronic conditions.

In general, if an HDHP provides benefits before the minimum annual deductible is met, an individual will be ineligible to make contributions to an HSA. However, an exception under Section 223(c)(2)(C) of the Internal Revenue Code allows an HDHP to provide preventive care benefits before the deductible is met. Notice 2019-45 builds on this exception by expanding the list of preventive care benefits to include treatments for a range of chronic conditions. Below, we discuss the preventive care rules impacting qualifying HDHPs and HSA eligibility and summarize Notice 2019-45.

HDHPs, HSA Eligibility, and Preventive Care Benefits

If an individual is covered under a qualifying HDHP with no disqualifying coverage (i.e., other health plan coverage that provides benefits below the statutory minimum deductible for HDHPs), he or she may be an HSA “eligible individual” able to establish and make HSA contributions. For 2019, a qualifying HDHP is a health plan with (1) an annual deductible that is not less than $1,350 for individual coverage or $2,700 for family coverage and (2) an annual out-of-pocket maximum of $6,750 for individuals and $13,500 for family coverage. Please note that these amounts are subject to cost-of-living adjustments as described in our article on the 2020 HDHP and HSA limits.

Code Section 223(c)(2)(C) excepts deductible-free preventive care from the standard rules precluding HSA eligibility where the HDHP enrollee has other health coverage that is available before the HDHP’s deductible is satisfied. The IRS has previously provided guidance as to what is (and is not) preventive care for these purposes in various notices. (See Notice 2004-23, Notice 2004-50, Notice 2013-57, and Notice 2018-12.) Notably, this prior guidance indicated that treatment of an existing illness, injury, or condition was not “preventive care” for purposes of the exception.

Under President Trump’s Executive Order 13877, the Treasury Department was directed to issue guidance to allow individuals with certain chronic medical conditions to receive preventive care treatment before reaching their annual deductible while still maintaining HSA eligibility. Understanding that individuals with chronic conditions often face financial hurdles in obtaining care for their chronic conditions and that the failure to seek treatment may exacerbate these conditions, the IRS has decided to classify certain treatments for chronic conditions as preventive care.

In Notice 2019-45, the IRS provided an appendix that includes a list of specific chronic conditions and the applicable medical care, and items that are now classified as preventive care. The specific medical treatments and items share a number of common characteristics:

1. The service or item is low cost.

2. There is medical evidence supporting high-cost efficiency of preventing exacerbation of the chronic condition or the development of a secondary condition.

3. There is a strong likelihood, documented by clinical evidence, that with respect to the class of individuals prescribed the item or service, the specific service or use of the item will prevent the exacerbation of the chronic condition or the development of a secondary condition that requires significantly higher-cost treatment.

In providing this methodology, the IRS noted that although other medical treatments and items may share similar characteristics as the ones stated above, only those medical treatments and items listed in the appendix are classified as preventive care for purposes of the Code Section 223(c)(2)(C) exception. Below is the appendix included in the notice:

Key Takeaways

Notice 2019-45 indicates that both the IRS and the Treasury Department will consult with the Department of Health and Human Services to periodically review and update the list of medical treatments that qualify as preventive care. As a result, it is entirely possible that additional services and/or items that would typically preclude HDHP/HSA enrollment will be added to the list included in this notice.

Employers that offer HDHP coverage options paired with HSAs may want to review their current plan design and plan participant communications to take advantage of this guidance. The key result under Notice 2019-45 is that by expanding the definition of preventive care, individuals suffering from chronic conditions will be able to receive certain medical services and items without having to worry as much about the cost and plan deductibles while retaining their ability to make and/or receive HSA contributions.