HSA eligibility and telehealth: Where do we stand?

Question

We offer free telehealth services to those enrolled in our health savings account (HSA)-qualifying high-deductible health plans (HDHPs) under a safe harbor that specifically allows us to offer this without risking HSA eligibility. We are concerned that this law will expire on December 31, 2024. Will the telehealth HDHP safe harbor get extended? And what are the potential options for HDHP sponsors if it expires?

Answer

The telehealth HDHP safe harbor that first became effective in 2020 is scheduled to expire for plan years beginning after December 31, 2024. Congress must act in order to keep the telehealth HDHP safe harbor in place for plan years after December 31, 2024.

Legislative action is still possible this year but is not guaranteed. HDHP sponsors should review their plans and determine appropriate action steps to ensure compliance in case the telehealth HDHP safe harbor expires.

Background

Internal Revenue Code section 223 permits eligible individuals to establish HSAs. Among other requirements, an “eligible individual” must be covered under an HDHP and have no disqualifying health coverage. Only eligible individuals are allowed to make contributions to an HSA or to receive contributions from an employer to their HSA.

An HDHP is a group health plan that satisfies certain requirements with respect to minimum annual deductibles and maximum out-of-pocket expenses.^[1] To qualify as an HDHP, the plan generally may not provide benefits for any year until the minimum annual deductible is met. Note, however, that an HDHP is not required to have a deductible for “preventive care.”

Telehealth services beyond preventive care that are provided to employees for free or for less than fair market value or before the minimum annual deductible is met would generally be considered “disqualifying health coverage,” thus making the employee ineligible to contribute to an HSA.

However, the Coronavirus Aid, Relief, and Economic Security (CARES) Act established a temporary telehealth HDHP safe harbor. It allows HDHPs to provide telehealth or other remote healthcare services for all conditions (not just COVID-19) without a deductible or with a deductible that is lower than the HDHP deductible. Under the telehealth HDHP safe harbor, telehealth and remote healthcare services are not considered disqualifying care and therefore do not negatively affect HSA eligibility.

The telehealth HDHP safe harbor was extended twice but currently expires on December 31, 2024. Note that for non-calendar-year plans, the safe harbor would continue for the remainder of the plan year that ends in 2025 (e.g., the relief would extend through June 30, 2025, for a plan year beginning July 1, 2024).

Possible extension scenarios

Legislation to extend the telehealth HDHP safe harbor is currently pending; however, legislative action may occur very late in 2024 or in 2025 — or not at all. Possible scenarios are discussed below.

Scenario 1: Another temporary extension

Another temporary extension is possible (though not guaranteed). Lawmakers could move a temporary extension with other year-end legislative items, listed as follows:

• Tax extenders: Other tax provisions, including those relating to the Airports and Airways Trust Fund and some energy-related tax provisions, also expire at the end of 2024. A telehealth HDHP safe harbor extension could be included if Congress moves to extend expiring tax provisions.
• Healthcare extenders: Some healthcare provisions expire at the end of 2024, including those related to Medicare. Though the legislative discussions about telehealth in Medicare generally have not included the telehealth HDHP safe harbor, the House and Senate committees with jurisdiction over HSAs also share jurisdiction over Medicare and could extend the telehealth HDHP safe harbor as part of a healthcare extenders legislative package.
• Stand-alone provision in a year-end package: Though it seems more likely that Congress would act on the telehealth HDHP safe harbor as part of a broader package of tax or healthcare extenders, Congress could also move the telehealth HDHP safe harbor as a separate provision in a government funding bill or other year-end legislative package.

With only a few weeks remaining in the legislative term, the telehealth HDHP safe harbor likely needs a viable, must-pass legislative vehicle to be enacted in 2024.

Scenario 2: A permanent extension

A few pending bills would make the telehealth HDHP safe harbor permanent, including:

• Telehealth Expansion Act — This bill was approved by the House Ways and Means Committee last year but has not moved further.
• TELEHEALTH HSA Act — This bill has not moved forward.

Congress is not likely to move on a permanent extension this year.

Scenario 3: No extension

Congress is not required to extend this law. Congress allowed the telehealth HDHP safe harbor to lapse for several months in 2022. If the law is not extended, telehealth will be treated as it was prior to the CARES Act in terms of HSA eligibility (i.e., as “disqualifying health coverage” for telehealth services beyond preventive care).

Note: The telehealth HDHP safe harbor could lapse on December 31, 2024, and an extension could be enacted in 2025, leaving a gap for plan sponsors and plan participants. This would raise questions for participants and employers about how the IRS would administer and enforce HSA eligibility in these circumstances.

Takeaways

• HDHP sponsors that wish to see the telehealth HDHP safe harbor extended should consider contacting their Congressional representatives as soon as possible about an extension.
• HDHP sponsors that offer telehealth or remote health services and currently charge HSA-eligible participants less than the fair market value of the services will want to determine how to address changes in the HDHP if the telehealth HDHP safe harbor is not extended. Options would include:
  • Charging fair market value for telehealth services before the participant meets the minimum annual deductible
  • Providing telehealth services only after the participant’s deductible is satisfied
  • Stopping the telehealth services altogether
• HDHP sponsors should review their plan’s coverage of telehealth services to determine if changes should be made for the plan year beginning in 2025. Changes to telehealth coverage should be reflected in the plan document and clearly communicated to participants through enrollment materials or through a summary of material modifications (SMM) or an updated summary plan description (SPD), if possible. Since open enrollment materials are likely to be finalized and sent before we know the status of a possible extension, calendar-year plans will need to rely on an SMM or SPD to communicate the change to participants. Clients should consult with their legal counsel as to the required timing and distribution of required notices.
• Given the uncertainty of the future of the telehealth HDHP safe harbor, plan sponsors will need to discuss plan operations and employee communications on this subject with legal counsel.

Footnote

1. For details on the 2025 limits, see “IRS announces 2025 HSA, HDHP and EB-HRA dollar limits,” Insider, May 2024. Return to article undo