Question: What is the status of the HSA eligibility issue for states with new male contraception/sterilization mandates?

Compliance Team Response:

HDHP Requirements

Individuals are eligible to make or receive HSA contributions only if (among other requirements) they are covered by a High Deductible Health Plan (HDHP).  One of the requirements of HDHP status is that the plan impose a minimum annual deductible of $1,350 for individual coverage and $2,700 for family coverage.

All services other than preventive care must be subject to the annual deductible before the plan pays for covered services.

For a full summary, see our Office Hours Webinar Go All the Way with HSA: Everything HDHP/HSA You Need to Know.

New State Insurance Mandates: Male Contraception and Sterilization

A few states (Maryland, Illinois, Vermont, Oregon) have recently imposed insurance mandates requiring male contraceptive/sterilization services be covered at no cost to the participant.  Male contraceptives and male sterilization coverage is not considered a preventive service under the HDHP rules.

This has presented the problem that no fully insured plan in those states could meet the requirements of an HDHP.  The result is that anyone covered by a fully insured plan would not be HSA eligible (i.e., would not be eligible to make or receive HSA contributions).

IRS Provides Transition Relief Until 2020

In IRS Notice 2018-12, the IRS provided a transition period until 2020.  The transition period provides that these male contractive/sterilization state insurance mandates will not cause plans to lose HDHP status for years prior to 2020.

During this transition period prior to 2020, individuals enrolled in a plan subject to one of the male contraception/sterilization state mandates that otherwise meets the requirements for HDHP status will still be HSA eligible (assuming no other disqualifying coverage).

What Happens in 2020

Once the transition period ends in 2020, plans that provide male contraceptive/sterilization services at no cost to the participant (without first being subject to the deductible) cannot qualify as an HDHP.  This means in states where such mandates exist, no individual will have access to fully insured HDHP coverage.

However, we expect that by 2020 the states mandating male sterilization/contraceptive coverage as a preventive service at no cost to the participant will either:

1. Remove that state mandate; or

2. Modify it to accommodate HDHP status requirements (i.e., permit it to be subject to the HDHP deductible).

An alternative possibility is that the definition preventive services for purposes of the of HDHP rules may be modified to accommodate male sterilization/contraceptive coverage.

In any case, it is likely that this issue will be resolved to a greater extent as we near 2020. 

Regulations:

IRS Notice 2018-12:

https://www.irs.gov/pub/irs-drop/n-18-12.pdf

Accordingly, this notice provides transition relief for periods before 2020 (including periods before the issuance of this notice), to individuals who are, have been, or become participants in or beneficiaries of a health insurance policy or arrangement that provides benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP. For these periods, an individual will not be treated as failing to qualify as an eligible individual under section 223(c)(1) merely because the individual is covered by a health insurance policy or arrangement that fails to qualify as an HDHP under section 223(c)(2) solely because it provides (or provided) coverage for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP.