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IRS Addresses Male Sterilization and Male Contraceptive Benefits and HSA Eligibility
Practical Law Legal Update w-013-5434 (Approx. 4 pages)
IRS Addresses Male Sterilization and Male Contraceptive Benefits and HSA Eligibility
by Practical Law Employee Benefits & Executive Compensation
| Published on 06 Mar 2018 • USA (National/Federal) |
The Internal Revenue Service (IRS) has issued Notice 2018-12, which provides that health plans that offer benefits for male sterilization or male contraceptives without a deductible (or with a deductible below the minimum annual deductible for high deductible health plans (HDHPs) under the rules for health savings accounts (HSAs)) do not qualify as HDHPs. The notice includes transition relief until 2020 for individuals enrolled in plans that do not qualify as HDHPs under this guidance.
In Notice 2018-12 (Mar. 5, 2018), the IRS took the position that a health plan that provides male sterilization or male contraceptive benefits without a deductible (or with a deductible below the minimum annual deductible for high deductible health plans (HDHPs) under the Internal Revenue Code's (Code's) health savings account (HSA) rules) is not an HDHP for HSA purposes (26 U.S.C. § 223(a), (c)(2)(A)). Notice 2018-12 also includes transition relief until 2020 for individuals enrolled in plans that do not qualify as HDHPs under the notice.
High Deductible Health Plans and HSA Eligibility
As background, individuals are eligible to deduct contributions made to an HSA, if (among other requirements) they are covered under an HDHP and do not have disqualifying health coverage (see Practice Note, Defined Contribution Health Plans: Health Savings Accounts (HSAs)). Under the HSA rules, an HDHP is a health plan that:
- Satisfies minimum deductible and maximum out-of-pocket expense requirements (see Practice Note, Defined Contribution Health Plans: Definition of a High Deductible Health Plan (HDHP)).
- May not provide benefits for a year until the deductible for that year is met.
However, HDHPs may provide certain preventive care benefits without a deductible (or with a deductible below the minimum annual deductible required under the HSA rules) (see Practice Note, Defined Contribution Health Plans: Definition of a High Deductible Health Plan (HDHP)). The IRS previously issued guidance addressing the scope of preventive care benefits that can be provided in this context (for example, see Notice 2004-23 and Notice 2004-50).
Although state insurance laws may require health insurance policies that are subject to state regulation to provide certain preventive health care benefits without deductibles, those rules do not govern whether the benefit is treated as preventive under the Code's HSA rules.
Preventive Health Services Under the Affordable Care Act
The Affordable Care Act (ACA) requires group health plans and insurers to provide first-dollar coverage for certain preventive health services, as addressed in ACA implementing guidance (Section 2713 of the Public Health Service Act (PHSA); 42 U.S.C. § 300gg-13; see also Practice Notes, Preventive Health Services Under the ACA, Other Than Contraceptives and Contraceptives Coverage Under the ACA). Any item that is a preventive service under the ACA (PHSA Section 2713) also is treated as preventive care under the HSA rules. However, the ACA rules do not provide for coverage of benefits or services relating to a man's reproductive capacity (for example, vasectomies and condoms).
Notice 2018-12
In Notice 2018-12, the IRS takes the position that benefits for male sterilization and male contraceptives are not preventive care under Code Section 223. As a result, a health plan that provides benefits for male sterilization and contraceptives without satisfying the minimum deductibles for HDHPs under the Code's HSA rules is not an HDHP. These requirements apply regardless of whether coverage of such benefits is required by state law.
An individual who is not covered by an HDHP for a month is not an eligible individual under the HSA rules and may not, as a result, deduct HSA contributions for that month. In addition, HSA contributions made by an employer on behalf of such an individual are not excludible from income and wages.
Transition Relief
In issuing Notice 2018-12, the IRS acknowledged that some states have enacted laws requiring health insurance policies to provide male sterilization or contraceptives benefits without a deductible. Individuals also may have enrolled in policies that otherwise would qualify as HDHPs with the understanding that coverage for male sterilization or male contraceptives without a deductible did not disqualify the policies from being HDHPs. Moreover, individuals who live in states with these laws:
- May be unable to purchase health insurance coverage that qualifies as an HDHP.
- Would be unable to deduct contributions to an HSA.
As a result, Notice 2018-12 provides transition relief until 2020, including for periods before Notice 2018-12 was issued. The transition relief applies for individuals who are, have been, or become participants or beneficiaries of a health insurance policy that provides benefits for male sterilization or male contraceptives without a deductible (or with a deductible below the minimum deductible for an HDHP under the HSA rules).
Under the transition relief, an individual will not be treated as failing to qualify as an "eligible individual" under the Code's HSA rules because the individual is covered under a policy that is not an HDHP solely because it provides (or provided) coverage for male sterilization or male contraceptives without a deductible (or with a deductible below the minimum deductible for an HDHP).
Request for Comments
In issuing this guidance, the IRS indicated that it is continuing to consider ways to expand the use and flexibility of HSAs and HDHPs consistent with Code Section 223. As a result, the IRS requests comments on the appropriate standards for determining if services should be considered preventive care under the Code's HSA rules.