Male Sterilization/Contraception Coverage Not Covered by Preventive Care Exception for HDHP Policies

The IRS issued guidance that may put at risk the ability of individuals in certain states to participate in health savings accounts (HSAs) beginning in 2020 in Notice 2018-12.

As Tax Analysts reported in covering this Notice, several states, including California, Illinois, Maryland, and Vermont, prohibit cost-sharing for insurance coverage of male sterilization and contraception services.  But only Vermont has a “carve-out” for HSA-qualified high deductible health plans (HDHPs).[1]

In order for an individual to make a contribution for a health savings account for a month, a taxpayer must have coverage under a qualified high deductible health plan and not have disqualifying coverage.[2]  Generally to be an HDHP, a plan must not provide benefits until a deductible has been met.[3]  However, under IRC §223(c)(2)(C), the fact that a plan provides certain preventive care benefits without meeting a deductible will not disqualify the plan from HDHP status.

Preventive care is defined under as being care within the meaning of Section 1871 of the Social Security Act, except as otherwise defined by the IRS.  The Affordable Care Act provided for mandatory preventive care provisions for health plans by adding Section 2713 to the Public Health Service Act (PHS Act).  That, as outlined in the Notice, provided the following:

Under section 2713(a)(1) of the PHS Act, evidence-based items or services constitute preventive health services if they have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force (USPSTF) with respect to the individual involved. Also, preventive health services under section 2713(a)(4) of the PHS Act include, “with respect to women, such additional preventive care and screenings not described in paragraph (1) [concerning the USPSTF A or B rated recommendations] as provided for in comprehensive guidelines supported by the Health Resources and Services Administration” (HRSA). HRSA guidelines generally provide for coverage of all Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity. The guidelines, however, do not provide for coverage of benefits or services relating to a man's reproductive capacity, such as vasectomies and condoms. (78 FR 8456 (Feb. 6, 2013) at 8458 n. 3.)

Notice 2013-57 provided that if an item is a preventive care item under section 2713 of the PHS Act, it would count as preventive care for which a benefit could be provided without having to meet the deductible and still allow a plan to be an HDHP.

But what about the male sterilization/contraceptive provisions being added to state laws?  The IRS notes that those are not covered by the current definitions of preventive care which has the following impact:

Benefits for male sterilization or male contraceptives are not preventive care under the SSA, and no applicable guidance issued by the Treasury Department and the IRS provides for the treatment of these benefits as preventive care within the meaning of section 223(c)(2)(C). Accordingly, under current guidance, a health plan that provides benefits for male sterilization or male contraceptives before satisfying the minimum deductible for an HDHP under section 223(c)(2)(A) does not constitute an HDHP, regardless of whether the coverage of such benefits is required by state law. An individual who is not covered by an HDHP with respect to a month is not an eligible individual under section 223(c)(1) and, consequently, may not deduct contributions to an HSA for that month. Similarly, HSA contributions made by an employer on behalf of the individual are not excludible from income and wages.

The IRS, recognizing that these policies are currently and have been in force prior to this notice and that state laws may take time to change, does provide for transition relief for 2018 and 2019:

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.

Of course, there is one other obvious solution—the IRS has been explicitly given authority to define what constitutes preventive care and could simply expand the definition to include these items.   While not indicating specifically that the agency would consider doing so before 2020, the Notice does ask for the following comments:

The Treasury Department and the IRS continue to consider ways to expand the use and flexibility of HSAs and HDHPs consistent with the provisions of section 223. Accordingly, the Treasury Department and the IRS request comments on the appropriate standards for preventive care under section 223(c)(2)(C) (in particular, the appropriate standards for differentiating between benefits and services that would be considered preventive care and those that would not be considered preventive care) and other issues related to the provision of preventive care under an HDHP.

[1] Brett Ferguson, “Vasectomies Don’t Make the Cut as Preventive Care,” Tax Notes Today, 2018 TNT 44-5, March 6, 2018

[2] IRC §223(c)

[3] IRC §223(c)(2)