One of the hottest benefit trends in 2016 is the adoption of free or low cost “telemedicine” programs to provide employees easy and affordable access to medical care. However, employers adopting these programs alongside high deductible health plans (HDHPs) need to be sure that they do not inadvertently disqualify the covered employees from eligibility for a health savings account (HSA).
The term “telemedicine” generally refers to healthrelated services delivered over the telephone or internet to employees and covers services ranging from non-specific wellness information about health conditions to primary care diagnosis and advice with prescription drug services. The employee’s cost for such services also varies and may consist of a charge on a “per-use” basis, or a monthly or annual fee for access. In many cases, employers are subsidizing the cost of the services or offering the services free of charge to encourage usage, which could create issues for employees with HSA coverage.
An HSA allows participants to defer compensation on a pre-tax basis for the purpose of paying eligible medical expenses if the participant is covered under an HDHP. In addition, the HSA participant must not be covered under any “disqualifying coverage.” Disqualifying coverage includes any health coverage that provides a benefit before the HDHP deductible is met and is often referred to as “first dollar coverage.” The IRS rules allow an exception from the first dollar coverage prohibition for certain types of coverage, including “permitted insurance” (for example, workers’ compensation, specified disease or illness insurance, per diem hospital benefits), “excepted benefits” (such as stand-alone dental or vision benefits), preventative care services, certain employee assistance programs (EAPs), and discount card programs allowing employees to receive discounted health services at managed care rates if the employee must pay for the balance until the HDHP deductible is met. Telemedicine programs that fall under one of the above categories will not prevent an individual from contributing to an HSA.
However, many telemedicine programs go beyond providing preventative care or EAP benefits and do not fall within the permitted insurance or excepted benefits categories. Thus, a telemedicine benefit could count as disqualifying coverage, for example, if the employer pays a portion of the cost of a telemedicine consultation, or the participant pays less than fair market value for access to the consultation, before meeting the HDHP deductible. Any telemedicine program providing primary care or prescription drug services in particular would likely trigger IRS scrutiny unless the employer can establish that the cost passed on to participants is the fair market value for the services. Although the IRS has not yet weighed in on the impact of telemedicine programs on HSA benefits, employers that sponsor HDHPs and telemedicine programs should consider the risks of potential HSA disqualification with legal counsel to ensure employees are not subjected to unintended income and excise taxes for participating in disqualifying coverage.
Content included in the Summer 2016 Benefits and Employment Briefing provided by our partner, United Benefit Advisors