High-Deductible Health Plans (HDHPs)
An HDHP is a health plan that satisfies certain requirements with respect to out-of-pocket expenses and annual deductibles based on whether the coverage is for “self-only” or “family.” Family HDHP coverage is a health plan covering one eligible individual and at least one other person, whether or not that other person is an eligible individual.
The monetary requirements for an HDHP are:
HSA Interaction with the ACA Deductible-Free Preventive Care Requirements
Generally, under section 223(c)(2)(A), an HDHP may not provide benefits for any year until the minimum deductible for that year is satisfied. However, section 223(c)(2)(C) provides a safe harbor for the absence of a deductible for preventive care. Therefore, an HDHP may provide preventive care benefits without a deductible or, in some cases with a deductible below the minimum annual deductible otherwise required. Notice 2004-23 clarifies that preventive care generally does not include any service or benefit intended to treat an existing illness, injury, or condition.
In response to a directive from Pres. Trump for the Secretary of the Treasury to issue guidance to expand the ability of patients to select HDHPs that can be used alongside an HSA, the IRS, in consultation with HHS, has determined that certain medical care services received and items purchased, including prescription drugs, for certain chronic conditions should be classified as preventive care for someone with that chronic condition, and thus won’t disqualify participation in an HSA when the HDHP provides coverage for these items without a deductible. These medical services and items are limited to the specific medical care services or items listed below, but the IRS and HHS will periodically review and update the list. (Notice 2019-45)
COVID-19 - Related Testing and Treatment
The IRS in Notice 2020-15 advised that, until further guidance is issued, high-deductible health plans (HDHPs) can pay for the COVID-19-related testing and treatment, without jeopardizing the plan status. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA).
However, in Notice 2023-37, the IRS and Treasury announced this special COVID relief described in Notice 2020-15 is no longer needed. Accordingly, Notice 2023-37 modifies Notice 2020-15 to provide that the relief described in Notice 2020-15 applies only with respect to plan years ending on or before December 31, 2024.
In Notice 2020-15 the IRS said that health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. The IRS also noted that, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP. Notice 2020-15 applies only to HSA-eligible HDHPs. Employees and other taxpayers in any other type of health plan with specific questions about their own plan and what it covers should contact their plan.
The CARES Act Sec 3701 allows a high deductible health plan to provide telehealth and remote care services without a deductible for 2020 and 2021. The period when this provision applies was extended to include months beginning after March 31, 2022, and before January 1, 2023 by the Consolidated Appropriations Act, 2022 and further extended through 2024 by the Consolidated Appropriations Act of 2023 (Subtitle E, Sec. 4151), signed into law December 29, 2022.
Out-of-Pocket Expenses
Include deductibles, co-payments and other amounts, but not insurance premiums. A plan is not disqualified as an HDHP merely because it does not have a deductible (or has a small deductible) for preventive care. A family plan will qualify as an HDHP only if amounts are not payable from the HDHP until the family collectively has incurred medical expenses in excess of the minimum annual deductible.
Example – Family Plan Does Not Qualify: Joe has a medical insurance plan that provides coverage for himself and his family. The plan will pay covered medical expenses of any member of Joe’s family if the family member has incurred covered medical expenses during the year of over $1,000, even if the family as a whole has not incurred medical expenses over $3,200 for 2024. So, if Joe’s medical expenses were $1,500 during the year, the plan would pay $500. This plan would not qualify as an HDHP because it provides family coverage with an annual deductible of less than $3,200.
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Example – Family Plan Qualifies: If the coverage for Joe and his family from the example above was that the plan had a $5,000 family deductible and provided payments for covered medical expenses if any member of Joe’s family incurred over $3,200 of expenses, the plan would qualify as an HDHP.
Example – Family Plan May Qualify: An otherwise qualified HDHP provides family coverage in 2024 with a $3,200 deductible for each family member. Once a family member satisfies the $3,200 deductible, 100% of that person’s covered benefits are covered by the plan. The plan has no express limit on out-of-pocket expenses. Because the limit on maximum out-of-pocket expenses for 2024 is $16,100, this plan will qualify as an HDHP only for a family with 2 to 5 covered individuals ($3,200 x 5 = $16,000), which does not exceed the ceiling for 2024. This plan would not qualify for a family with over 5 covered individuals (6 x $3,200 = $19,200, which exceeds the $16,100 maximum for 2024).
Deductible Period Over 12 Months
If a plan’s deductible can be satisfied over a period longer than 12 months, the minimum annual deductible must be increased to take the longer period into account when determining if the plan satisfies the HDHP deductible requirement.
Example – Deductible Period Exceeds 12 Months: Fiona’s self-only health plan takes into account medical expenses incurred in the last 3 months of 2023 to satisfy the deductible for calendar year 2024, a total deductible period of 15 months, and for that period the plan’s deductible is $2,500. The calculation to determine if the deductible meets the HDHP minimum annual deductible requirement is: $1,600 x 15 months = 24,000/12 = $2,000, the minimum amount that the HDHP deductible must be for 15 months. Because the plan’s deductible, $2,500, exceeds $2,000, the plan qualifies as an HDHP.
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