Several states (i.e. Maryland) have required that health insurance policies issued in the state must provide for male sterilization or contraceptives without a deductible or with a deductible below the minimum deductible for an Health Savings Account (HSA) qualifying high deductible health plan (an HDHP). This poses HSA eligibility problems.
Under current guidance, a health plan that provides benefits for male sterilization or male contraceptives before satisfying the minimum deductible for an HDHP under section 223(c)(2)(A) does not constitute an HDHP, regardless of whether the coverage of such benefits is required by state law. An individual who is not covered by an HDHP with respect to a month is not an eligible individual under section 223(c)(1) and, consequently, may not deduct contributions to an HSA for that month. Similarly, HSA contributions made by an employer on behalf of the individual are not excludible from income and wages.
As a result of industry efforts, the IRS issued Notice 2018-12 on March 5, 2018 to provide transition relief until 2020. The relief is so individuals covered by high deductible health plans that paid for male sterilization and male contraceptive expenses below the deductible will still be temporarily eligible to make contributions to an HSA.
“This Notice clarifies that a health plan providing benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code (Code), is not an HDHP under current guidance interpreting the requirements of section 223(c)(2) of the Code. This notice further provides transition relief for periods before 2020 during which coverage has been provided for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP…
…The Treasury Department and IRS also understand that certain states may wish to change their laws that require benefits for male sterilization or male contraceptives to be provided without a deductible in response to this notice, but may be unable to do so in 2018 because of limitations on their legislative calendars or for other reasons. Until these states are able to change their laws, residents of these states may be unable to purchase health insurance coverage that qualifies as an HDHP and would be unable to deduct contributions to an HSA…
…The Notice requests comments on the appropriate standards for preventive care under Internal Revenue Code section 223(c)(2)(C) (in particular, the appropriate standards for differentiating between benefits and services that would be considered preventive care and those that would not be considered preventive care) and other issues related to the provision of preventive care under an HDHP. This is important as the Treasury Department and the IRS continue to consider ways to expand the use and flexibility of HSAs and HDHPs consistent with the provisions of section 223.”
We will continue to provide updates as information becomes available.