In guidance addressing the US outbreak of COVID-19 (the disease that results from SARS-CoV-2), the IRS has removed certain barriers for COVID-19 testing and treatment under the rules for health savings accounts (HSAs) and high-deductible health plans (HDHPs) (Notice 2020-15 (Mar. 11, 2020) ("Notice")). (For more information on COVID-19 and employer-sponsored health plans, see Practice Note, COVID-19 Compliance for Health and Welfare Plans)

The Notice responds to employer uncertainty regarding whether a health plan that provides testing for COVID-19 without cost-sharing—for individuals who have not met their deductibles—remains an HSA-compatible HDHP. (For more information on the Internal Revenue Code (Code) requirements for HSAs and HDHPs, see Practice Note, Defined Contribution Health Plans: Overview: Definition of a High-Deductible Health Plan (HDHP).)

As background, the Code permits an individual to deduct contributions to HSAs if, among other requirements, the individual:

(26 U.S.C. § 223(c).)

An HDHP is a health plan that satisfies requirements under Code Section 223, including with regard to minimum deductibles and maximum out-of-pocket expenses (26 U.S.C. § 223(c)(2)). Although, as a general rule, an HDHP may not provide benefits for a year until the deductible for that year is satisfied, the Code includes a safe harbor for the absence of a preventive care deductible (26 U.S.C. § 223(c)(2)(C)). Under the safe harbor, plans that do not have a deductible for preventive care do not fail to be treated as HDHPs. The safe harbor permits HDHPs to provide preventive care either:

Prior IRS guidance has addressed which benefits are preventive care for this purpose (IRS Notice 2004-23). However, some employers expressed uncertainty regarding whether a health plan that provides COVID-19 testing and treatment without cost-sharing—where an individual has not satisfied the applicable deductible—is an HSA-compatible HDHP.

The Notice provides that a health plan that otherwise meets the requirements to be an HDHP (under Code Section 223(c)(2)(A)) does not fail to be an HDHP merely because it provides medical care services and items purchased related to testing for and treatment of COVID-19 before the applicable HDHP minimum deductible is met (26 U.S.C. § 223(c)(2)(A)). As a result, an individual who is covered by such an HDHP does not lose eligibility to make tax-favored HSA contributions merely because the HDHP provides benefits for COVID-19 testing and treatment.

The Notice does not change IRS prior guidance regarding HDHP requirements, except as to relief provided for COVID-19 testing and treatment. Vaccinations continue to be considered preventive care under the Code in determining whether a health plan is an HDHP (26 U.S.C. § 223(c)(2)(C)).

Although some employers had already requested guidance on this question, the Notice was issued more quickly than might usually be the case—underscoring the importance of removing barriers to COVID-19 testing and treatment as the outbreak spreads in the US. Relatedly, several states have instructed insured health plans to cover COVID-19 testing without cost-sharing (see Legal Update, President Signs Legislation to Fund Coronavirus Response: Health Insurers to Waive Co-Pays).

The Notice offers HDHPs the flexibility to provide benefits for COVID-19 testing and treatment without application of a deductible or cost sharing. As the IRS notes, however, participants in health plans and HDHPs need to consult their particular plan concerning benefits for COVID-19 testing and treatment, including how deductibles and cost-sharing apply.