As a result of the COVID-19 health crisis, lawmakers and federal regulators have made three recent changes to Health Savings Accounts, and one of those changes appears to be permanent.
2019 Contribution Deadline
As Forbes explains in a March 24 article, the IRS “has clarified that the deadline for making Individual Retirement Account and Health Savings Account contributions for the 2019 tax year has been extended to July 15, 2020.” This coincides with the new filing deadline for 2019 tax returns.
If it hasn’t happened already, your clients who have a Health Savings Account should soon receive form 5498-SA from their HSA administrator. This document shows their total contributions for the previous tax year and is sent out every year in late April or May. If an account holder takes advantage of this opportunity to make HSA contributions for 2019 through mid-July, he or she should receive an amended form 5498-SA from the HSA administrator following the contribution.
Coverage Prior to the Deductible
You’ve probably heard that, shortly after the coronavirus began spreading in the United States, the IRS published Notice 2020-15, which says testing and treatment for COVID-19 prior to the minimum HDHP deductible will not disqualify a plan from HSA-eligibility:
To facilitate the nation’s response to the 2019 Novel Coronavirus (COVID-19), this notice provides that, until further guidance is issued, a health plan that otherwise satisfies the requirements to be a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code (Code) will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Therefore, an individual covered by the HDHP will not be disqualified from being an eligible individual under section 223(c)(1) who may make tax-favored contributions to a health savings account (HSA).
The CARES Act takes it a step further. Section 3701 of the relief bill provides an exemption for telehealth services by creating a “Safe Harbor for Absence of Deductible for Telehealth.” In short, a plan that offers up-front coverage, prior to the deductible, for telehealth and other remote care services will not disqualify a plan from HSA eligibility, and this is true for plan years beginning on or before December 31, 2021.
That does seem to answer the question agents have had for the past several years about whether a $0 telehealth benefit would disqualify an HSA — apparently, it would. But now, for plans starting in the next year and a half, it won’t be an issue. We’ll see if Congress decides to make this change permanent.
Since 2011, thanks to the Affordable Care Act, over-the-counter drugs cannot be paid with tax-free dollars through an HSA, HRA, or FSA without a prescription. But, as explained by NPR, the CARES Act has restored over-the-counter drugs as an eligible expense, and this is a permanent change.
Section 3702 of the $2.2 trillion law strikes a sentence from the ACA that only permitted these tax-free dollars to be used "for medicine or a drug only if such medicine or drug is a prescribed drug." In short, that means that OTC drugs are once again an eligible expense.
Not only that, but the law also makes menstrual care products an eligible expense under these tax-advantaged accounts. As NPR says, this is a big win for women’s rights advocates, and it is also a permanent change.
Tell Your Clients!
There’s been a lot of bad news recently, so these three HSA changes are a bit of good news you can share with your clients. Brokers who are able to provide concise, reliable communications to their clients will be viewed as trusted resources in the months to come, so be sure to reach out to your clients on a regular basis as the nation continues to deal with COVID-19.