With little time to spare before the provisions expired, Congress has extended, and President Biden is set to sign into law, an important safe harbor that allows plan sponsors to continue offering reduced-cost telehealth services without disrupting the ability to contribute to health savings accounts (HSAs). The extension is part of the $1.7 trillion Consolidated Appropriations Act of 2023.
Section 223 of the Internal Revenue Code prohibits taxpayers and employers from contributing to HSAs on a tax-favored basis while simultaneously participating in certain “disqualifying” medical coverage. With limited exceptions, medical plans that are not “high-deductible health plans” will disqualify contributions to an HSA. Without a specific exception, the Code would require participants to pay the fair market value of their telehealth visit before their deductible is met; otherwise, the telehealth option would likely be considered HSA-disqualifying coverage.
This rule changed during the early stages of the COVID-19 pandemic when Congress passed a temporary safe harbor as part of the CARES Act, adding telehealth services to the Code’s list of medical care that could be provided before the taxpayer met the plan’s annual deductible. This new rule allowed plan sponsors to offer telehealth services at a reduced cost (or no cost at all) to employees without jeopardizing their employees’ right to make HSA contributions. The CARES Act did not intend for this to be a permanent change to the Code; rather, Congress provided that the safe harbor would sunset at the end of 2021 for calendar year plans. The 2022 Consolidated Appropriations Act extended the relief for an additional year (although, as a technical matter, this extension did not apply to the first three calendar months of 2022).
This latest extension of the safe harbor signed into law this month gives plan sponsors an additional two years of relief. These new provisions also retroactively allow for tax-favored HSA contributions in the period that previously caused HSA compliance issues for the months between January 1, 2022, and March 31, 2022.
Although this safe harbor has proved valuable, particularly for individuals with mental health and substance use disorders, it is not mandatory. Plan sponsors are not required to offer subsidized telehealth benefits (or even offer a telehealth option at all). The late timing of this extension may mean that employers wishing to take advantage of this safe harbor will need to communicate the change to employees and perhaps issue a summary of material modifications (SMM) to correct any previously issued 2023 benefit summaries that described a roll-back of the subsidized telehealth benefit.
Attorneys in Ballard Spahr’s Health Care and Employee Benefits and Executive Compensation Groups monitor and analyze legislative developments. Our attorneys help clients understand the relevant changes and plan for the future. We understand how legal developments in the health care system can affect business. Guided by years of experience in the health industry, we prepare clients for legislative and regulatory changes and help them meet new requirements quickly and efficaciously.