Like many of you, I woke up to another day of social distancing, prodigious handwashing, and a litany of unanswered questions.
“Why did they start teaching third-grade math this way? What was wrong with the real way?”
“At what time of day do I change from my daytime sweatpants to my nighttime sweatpants?”
“Will my parents ever figure out how to work their camera when we Facetime, or will I continue to talk to their empty dining room?”
Fortunately, we’re beginning to see the answers to more pressing questions in the time of the novel coronavirus 2019 (COVID-19): “How do I protect my health and the health of my family? And how would I pay for tests and treatment?”
One such useful vehicle for tackling the financial burden of medical expenses is through a health savings account (HSA). Many employees and their family members are enrolled in qualifying high-deductible health plans (HDHPs), which are required for the establishment of an HSA. However, for HDHPs, nothing but a list of preventive care expenses, vision, and dental care can be paid by the HDHP on behalf of an HSA owner before the HDHP’s or statutory deductible is met. If the HDHP pays for other expenses prior to reaching the deductible, the HSA-holder will not be able to make contributions to that HSA.
On March 11, 2020, the Treasury and Internal Revenue Service (IRS) issued guidance in Notice 2020-151 to “facilitate the nation’s response” to COVID-19 and to remove potential financial burdens from HSA owners that might dissuade them from seeking the testing or treatment they and their family members need.
The guidance in Notice 2020-15 allows HDHPs to provide benefits associated with testing for and treatment of COVID-19 either without a deductible or with one that is below the otherwise required minimum annual deductible. This guidance, therefore, allows that an HDHP providing such care on a no- or low-cost basis will not fail to qualify as an HDHP. Therefore, employees’ eligibility to make contributions to their HSAs will not be jeopardized, even if medical expenses related to COVID-19 testing or treatment are paid by the HDHP.
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (FFCRA),2 which requires—among other things—group health plans and insurers (including grandfathered plans) and government programs to cover—without “any cost sharing (including deductibles, copayments and coinsurance) requirements or prior authorization or other medical management requirements—Food and Drug Administration-approved COVID-19 diagnostic testing products. This coverage must include items and services furnished during a provider visit (that is, urgent care, emergency room, office or telehealth visits) that relate to or result in an order for or administration of a covered diagnostic test.
While the requirement to cover this testing does not directly amend the Internal Revenue Code (the “Code”), the Employee Retirement Income Security Act (ERISA), or the Public Health Service Act (PHSA)—that is, this requirement is considered “off-Code”)—the Departments of Health and Human Services (HHS), Labor, and Treasury are specifically authorized to implement these requirements through subregulatory guidance and instruction.
The requirement to cover COVID-19 testing costs starts from the date of enactment (that is, March 18, 2020) until the Secretary of HHS determines that the public health emergency has expired.
Shortly thereafter, the IRS—in its Notice 2020-183—delayed the April 15, 2020, deadline for 2019 federal income tax return filings and income tax payments to July 15, 2020. In addition, the IRS has published helpful guidance and clarification—in the form of an FAQ4—concerning the relief provided in Notice 2020-18. A particularly noteworthy FAQ addresses the impact of this delay with respect to contributions to Health Savings Accounts (HSAs):
Contributions may be made to your HSA or Archer MSA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns is now July 15, 2020, under this relief, you may make contributions to your HSA or Archer MSA for 2019 at any time up to July 15, 2020.
Perhaps the most significant development came on March 27, 2020, with the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).5 Coming swiftly after the FFCRA,this $2 trillion stimulus bill provides additional emergency relief for families and includes several provisions that will make a major impact on those with HSAs, flexible spending accounts (FSAs) and health reimbursement accounts (HRAs).
Just as HSA-qualified health plans can provide benefits related to COVID-19 testing and treatment either without a deductible or with reduced or no-cost sharing without jeopardizing HSA eligibility, The CARES Act expanded this to include all remote care service expenses (i.e., telehealth). Previously, plans that covered telemedicine prior to reaching the deductible disqualified account holders from making HSA contributions. This change, effective as of the date of enactment, applies for plan years beginning on or before December 31, 2021.
This is huge news amid the COVID-19 pandemic as more people can affordably access a physician without exposure to unnecessary health risk. Telemedicine keeps sick people away from other sick and healthy people, which is crucial to help reduce contagion.
Employers have wanted to provide telemedicine coverage for a long time. It’s more cost effective and minimizes time out of work. Plus, there’s good evidence that remote care medicine is the future of healthcare, so it’s assuring that legislation is keeping pace with innovation. Remote care services are especially important in rural communities where physician access is not readily available.
The CARES Act also removes the Affordable Care Act’s requirement to obtain a prescription for over-the-counter (OTC) drug reimbursements. Previously, those with health FSAs, HRAs and HSAs needed a prescription to use such accounts to pay for items like cough syrup, acetaminophen, ibuprofen, and more. The removal of this requirement will afford tax-advantaged account holders an immediate cost-savings while also reducing healthcare providers’ need to write prescriptions for these common OTC medications.
In addition, this move will likely increase the use of OTC medications over prescription drugs, which could drive huge cost savings across America. A recent study6 found that, “On average, each dollar spent on OTC medicines saves the U.S. healthcare system approximately $7.20.” The calculations included costs for physician visits, lost work productivity, and relative costs of prescription meds versus OTC.
Furthermore, menstrual care products are now considered qualified medical expenses for purposes of tax-free payment or reimbursement through a health FSA, HRA, or HSA. Previously categorized as personal hygiene items, the CARES Act recognizes these items as eligible medical expenses affecting a part or function of the body. Both the OTC and menstrual care product revisions generally apply to expenses incurred on or after January 1, 2020 (in the case of an HSA, they apply to amounts paid on or after January 1, 2020); there is no expiration date for this provision.
Taken together, these provisions in the CARES Act represent significant advances providing immediate relief amid a pandemic, while laying the groundwork for better functioning, more modern healthcare in the long run. HSAs and other tax-advantaged accounts now further increase access, alleviate the burden on our health system and drive real cost savings for consumers at a critical time.
Of course, some questions remain. Employees may be asking to elect—or make a change to an existing election of—a health FSA because of changes to their health, or because of an increase or decrease in their healthcare spending. Preventive dental care, eye exams, and elective surgeries may have been canceled due to COVID-19 considerations (I am currently seeing—no pun intended—how long I can go before I run out of contact lenses). Unfortunately, under current guidance, changes to election amounts due to having additional (or fewer) medical expenses is not an allowable “change in status” event. Unfortunately, neither is a change in a person’s health status as a reason to enroll in or change an election of a health FSA. Only a verifiable “change in status” allows employees to change their initial elections into the health FSA.
Some employers may wonder if they could extend their health FSA’s grace period after the end of the plan year to help their health FSA’s participants from forfeiting previously contributed funds. While offering such a grace period is optional, the governing regulations limit it to up to two months and fifteen days. However, a runout period can be extended (that is, a longer time for which incurred expenses can be submitted) following the end of the grace period. Similarly, employers may question if they are permitted to increase carryover amounts (that is, the unused health FSA funds from the previous year) beyond the current $500 statutory limit. This amount is IRS-determined and, at present, remains at a limit of $500 for unused health FSA funds.
Dependent care FSAs (DCFSAs) are another area of concern. Many parents may be working from home (due, possibly, to an employer mandate or even state and local requirements) and may decide to care for their child from home instead of sending their children to daycare. Similarly, schools may have closed resulting in additional childcare costs. The DCFSA election change rules are very broad. Employees may change their elections if there is a change in the childcare provider or cost of coverage. The election change must be consistent with the reason for the change. For example, if the childcare provider is no longer providing the care (e.g., the childcare facility closes temporarily to comply with local requirements), the election can be reduced or eliminated. Due to the broadness of these rules, additional clarification or guidance with specific respect to COVID-19 should not be necessary. However, sufficient attention should be paid as this situation continues to develop.
Of course, many remain hopeful that an additional bill addressing COVID-19 issues is in the offing, such as potential financial relief to help those workers laid off, furloughed, or had their hours of employment reduced, maintain their employment-based coverage through COBRA, opening a special enrollment period nationally so people in need of health coverage can enroll in the Marketplace, or increasing health care tax credits to lower health insurance premiums.
However, employers and third-party administrators are not, in the meantime, specifically prohibited from taking their own initiative with respect to potentially ameliorative actions for their COBRA population. Following previous emergencies and disasters (such as the California wildfires), employers and plan fiduciaries were encouraged to take reasonable measures and make prudent accommodations—to the greatest extent possible—to prevent losses of benefits and otherwise act in the interest of their plan participants.
In the interim, stay healthy and stay tuned.