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Summary: Recent IRS guidance modifies prior COVID-related IRS guidance from 2020, which provided a temporary safe harbor permitting HSA-compatible HDHPs to pay for COVID-19 testing and treatment services on a first-dollar basis, or prior to members satisfying their HDHP deductible. For plan years beginning on or after January 1, 2025, this temporary safe harbor will no longer apply and HDHPs must impose the plan’s deductible prior to applying cost-sharing to COVID-19 testing and treatment services.
Read on for more information.
The Internal Revenue Service (IRS) issued Notice 2023-37 (“revised guidance”) on June 23, 2023, clarifying that for plan years ending on or before Dec. 31, 2024, health-savings account-compatible high-deductible health plans (HSA-compatible HDHPs) may still rely on prior COVID-related IRS guidance to pay for COVID-19 testing and treatment services before HDHP annual plan deductibles are satisfied.
However, for plan years beginning on or after January 1, 2025, an HSA-compatible HDHP is not permitted to pay for COVID-19 testing and treatment services without first imposing the plan’s deductible.
A high-deductible health plan (HDHP) is a health plan with prescribed minimum deductible and maximum out-of-pocket amount limits.
Generally, an HSA-compatible HDHP cannot pay for benefits until the applicable minimum deductible for that plan year is satisfied. However, Internal Revenue Code (IRC) § 223(c)(2)(C) provides a safe harbor for preventive care to be covered on a first-dollar basis and before satisfying an HDHP’s deductible.
The revised guidance modifies prior COVID-related IRS guidance from three years ago, specifically Notice 2020-15, which provided flexibility and temporary relief for HDHPs to pay for COVID-19 testing and treatment services as first-dollar coverage without imposing the plan’s deductible or other cost-sharing.
Now that the COVID National Emergency Declarations have ended as of May 11, 2023 (click here and here for previous Risk Strategies articles on this topic), the temporary relief in Notice 2020-15 is no longer needed, according to the revised guidance.
As a result, the temporary safe harbor permitting HSA-compatible HDHPs to pay for COVID-19 testing and treatment services on a first-dollar basis, or prior to members satisfying their HDHP deductible, will no longer apply to plan years beginning on or after January 1, 2025.
For non-calendar year plans, the temporary safe harbor in prior COVID-related IRS guidance relief is in effect through a plan year ending in 2024.
Non-Calendar Year Plan Example: The temporary safe harbor relief would end on September 30, 2024 for a plan year that begins on October 1, 2023 and ends on September 30, 2024.
Additionally, the revised guidance clarifies that COVID-19 screening, including testing, is not part of the preventive care safe harbor contained in Notice 2004-23 as of July 24, 2023. However, an HDHP may still continue to pay for COVID-19 testing before satisfying the plan’s deductible for plan years ending on or before December 31, 2024, in accordance with the revised guidance.
Moreover, the revised guidance confirms if COVID-19 testing were to be recommended with an “A” or “B” rating by the U.S. Preventive Services Task Force (USPSTF), then COVID-19 testing would be considered preventive care under IRC § 223(c)(2)(C), regardless of the cost share requirement for these services. This position in the revised guidance is consistent with prior IRS and other federal agency joint guidance in response to a recent Texas court decision in Braidwood Management v. Becerra. Click here for a Risk Strategies article with more details on the Braidwood ruling and subsequent litigation impacting health plan coverage of preventive services under the Affordable Care Act.
Practically, the revised guidance permits employers sponsoring HSA-compatible HDHPs to continue paying for COVID-19 testing and treatment services before satisfying the plan’s deductible for plan years ending on or before December 31, 2024.
For HSA-compatible HDHPs with plan years beginning on or after January 1, 2025, this prior COVID-related IRS guidance will no longer apply and these plans must then impose deductibles before the plan pays for COVID-19 testing and treatment services.
As 2024 approaches, employers sponsoring HSA-compatible HDHPs who continue to include COVID-19 testing and treatment services on a pre-deductible basis should consult with their insurance carriers (for fully-insured plans) and third-party administrators (for self-funded plans) to determine next steps to comply with the revised guidance. These next steps will presumably include considering the financial impact to the HDHP when deciding whether to continue COVID-19 testing and treatment cost-sharing on a pre-deductible basis for the 2024 plan year.
For employers who currently allow pre-deductible coverage for COVID-19 testing and treatment, they are advised to begin preparations to clearly communicate any changes to employees and amend Summary Plan Descriptions (SPDs), and other applicable plan documents, as a result of the revised guidance.
In a related reminder, telehealth relief for HSA-compatible HDHPs, originally passed under the CARES Act of 2020 in response to the COVID-19 pandemic, was extended until December 31, 2024 under federal legislation passed at the end of 2022. Click here to learn more.
Reach out to your Risk Strategies representative with any questions or contact us directly at email@example.com.
 Preventive care generally does not include any service or benefit intended to treat an existing illness, injury, or condition. IRS Notice 2004-23.
 Note that screenings for common and episodic illnesses, such as the flu, are also not included as part of the preventive care safe harbor in contained in Notice 2004-23.
 July 24, 2023 is the publication date of IRS Notice 2023-37.
 COVID-19 testing is not included in the current recommendations from the USPSTF.