New direct primary care rules are a tough pill for HSAs
As an employee benefits attorney and compliance consultant, last summer’s executive order on “improving price and quality transparency in American healthcare to put patients first” piqued my interest. In particular, I honed on in section 6(b), aimed at treating expenses related to direct primary care arrangements as eligible medical expenses.
As someone dealing with a complicated medical history, digging into the order and digesting the resultant proposed IRS rule was more than my job – it was and is part of my life.
Several years ago, I decided to give direct primary care a try. For about $100 a month, I gained direct access to and the undivided attention of a physician who knows me and my unique medical needs. I pay a flat, upfront fee and my doctor coordinates and manages my treatment, which isn’t always smooth sailing for someone dealing with a complex connective tissue disorder. My primary care physician serves as the coach and quarterback of my medical care, directing tests, meds, and visits to various specialists like rheumatologists or neurologists. If I have a common cold or infection, she’s readily available to prescribe treatment and set my mind at ease.
Since arriving on the scene in the 2000s, direct primary care has grown in popularity and availability. In the age of skyrocketing monthly premiums and a multitude of confusing options, more Americans are flocking to direct primary care to supplement their existing coverage. Some employers are even looking at it to drive down costs.
Now, direct primary care only covers, well, primary care, so I’ve paired it with a high-deductible healthcare plan and a health savings account to pay for my many additional medical expenses. I’m not alone: more than 21 million Americans are following the same path.
However, rather than making direct primary care more accessible, the proposed regulations actually make it virtually impossible for all of us with HSAs. Remember, by law, to qualify for an HSA, individuals must be covered by a high deductible health insurance plan. The rationale for this is consumers with more on the line are more responsible in controlling their health care costs and thus rewarded with the tax-advantaged benefits of an HSA.
Here’s the problem: the proposed regulations define direct primary care as a form of insurance – one that is not a high-deductible health plan and would therefore disqualify me from having access to an HSA.
Regulators point out that direct primary care arrangements provide various services like checkups, vaccinations, urgent care, lab tests, and diagnostics before the high deductible has been satisfied. According to the preamble to the proposed regulations, “an individual generally is not eligible to contribute to an HSA if that individual is covered by a direct primary care arrangement.”
Keep in mind, 32 states consider direct primary care a medical service rather than a health plan and exempt it from insurance regulation. Even the Department of Health and Human Services shares that view, noting in a March 12, 2012, final exchange rule that “direct primary care medical homes are not insurance.” In addition, the proposed rule itself includes some contradictory language and implications when it comes to defining direct primary care relating to other factors.
By its very nature, direct primary care is a contract between patient and physician without billing a third party. In cutting out the insurance companies, it seems obvious that direct primary care is not a competing insurance plan, but instead, a valuable service that can accompany existing coverage.
Furthermore, there is no clear justification for painting direct primary care as disqualifying medical insurance for those with HSAs. The IRS has more than enough flexibility and discretion to determine that direct primary care does not count as insurance. Regulators could do so while still treating direct primary care as a tax-deductible medical expense, which seems to be the intention of the proposed rule in the first place.
For millions of Americans, direct primary care has been a godsend in taking control of medical care, cutting through frustrating options, and gaining peace of mind when it comes to both health and healthcare costs. In short, direct primary care is everything primary care should be and was supposed to be. It’s an option that individuals should be permitted to access to complement (not compete with) high deductible health insurance plans and HSAs.
Although the comment period for the proposed regulations is now over, I am hopeful with a few tweaks and small changes they can better align with the stated purpose of the executive order, empowering patients to choose the healthcare that is best for them. If not, the new rules would likely be a hard pill to swallow for the entire direct primary care community.