If you’re managing a chronic illness, you know how expensive it can be to take care of yourself.
In July 2019, the IRS (with the Department of Health and Human Services) provided guidance that HSA-eligible high deductible health plans (HDHPs) consider a number of medical services, medications, and devices, like insulin, statins, and inhalers as “preventative care” to be covered before the annual deductible is met.
This guidance could offer significant changes for people with certain chronic illnesses who have had to pay for devices, medications, and services out of pocket until their annual out-of-pocket maximums were met.
Typically, to qualify as a high deductible health plan, an HDHP cannot provide benefits until the annual minimum deductible is met. However, HDHPs are not required to have a deductible for preventive care (according to HDHP/HSA rules).
Let’s explore what this guidance could mean for you. It’s vital to note that this is IRS guidance only, not a mandatory requirement. You’ll have to check with your plan to see if they will be adopting these changes.
How changes to HDHP/HSAs will help those with chronic illnesses
High Deductible Health Plans (HDHPs) have gained popularity in the past few years. Between 2007 and 2017, enrollment in HDHPs with a Health Savings Account (HSA) for adults aged 18 - 64 with employment-based coverage rose while enrollment in traditional plans decreased.
A big selling point for HDHPs is that the monthly premiums are typically lower than the monthly payments for traditional medical insurance. In addition to the monthly savings, qualifying HDHPs allow participants to open an HSA.
HSAs offer three tax advantages:
- The money you contribute to your HSA is tax-free. Typically, the contributions are taken out of your paycheck before taxes are calculated. If you directly contribute, that amount is tax-deductible.
- The earnings on your HSA contributions grow tax-free.
- When you use HSA money for allowable out-of-pocket medical expenses, the withdrawals are tax-free.
For many people, HDHP/HSA coverage works well. However, when a chronic illness creeps in, the high deductible ($1,350 per individual, $2,700 per family in 2019), can cause financial strain.
Many chronic illnesses can be managed with “preventative care,” however, this care often comes with a hefty price tag. The high deductibles can force people to pay preventative care costs out-of-pocket before the plan kicks in and shares costs.
This guidance aims to ease costs for those with HDHP/HSA coverage by covering low-cost care or services likely to prevent chronic illness from getting worse and help prevent them from developing secondary conditions that will ultimately require higher-cost treatments.
The expanded list of preventative care that can be provided by an HDHP includes:
- Angiotensin-Converting Enzyme (ACE) inhibitors - Congestive heart failure, diabetes, and/or coronary artery disease
- Anti-resorptive therapy - Osteoporosis and/or osteopenia
- Beta-blockers - Congestive heart failure and/or coronary artery disease
- Blood pressure monitor - Hypertension
- Inhaled corticosteroids - Asthma
- Insulin and other glucose-lowering agents - Diabetes
- Retinopathy screening - Diabetes
- Peak flow meter - Asthma
- Glucometer - Diabetes
- Hemoglobin A1c testing - Diabetes
- International Normalized Ratio (INR) testing - Liver disease and/or bleeding disorders
- Low-density Lipoprotein (LDL) testing - Heart disease
- Selective Serotonin Reuptake Inhibitors (SSRIs) - Depression
- Statins - Heart disease and/or diabetes
In addition, the Treasury Department and the IRS, along with HHS, will review the preventative care items and services list periodically to determine if any items and services should be added or removed.
If you’re managing a chronic illness and have considered an HDHP/HSA option in the past but stayed away due to the high deductible costs, you may want to take another look.
When you combine the possible savings this new guidance may provide, and the ability to contribute tax-free money to an HSA, an HDHP/HSA combo may make good sense for you!
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.