With continually-rising health benefits costs, more and more employers are looking to High Deductible Health Plans as a way to mitigate their rising expenses. Unfortunately this change in plan design means that the employees are left with an increased exposure for out-of-pocket costs related to the higher deductibles. Many employees are more familiar with the flat dollar copay that is common with a traditional insurance plan. Employers therefore frequently lessen the pain of the higher out-of-pocket costs by offering contributions to tax vehicles such as Health Savings Accounts.
Many individuals who participate in a high deductible health plan (HDHP) also have the option to make pretax contributions to a health savings account (HSA). Funds in the HSA can then be used to pay for medical expenses. There are a lot of rules about Health Savings Accounts (HSAs) because of the tax breaks associated with them. To be able to make HSA contributions, therefore, the health plan member cannot have any “disqualifying coverage”.
Disqualifying coverage includes any health coverage that provides a benefit (other than preventive care) before
the HDHP deductible is met, often termed “first dollar benefits”. A telemedicine benefit could count as disqualifying coverage, for example, if the employer pays a portion of the cost of a telemedicine consultation, or the participant pays less than fair market value for access to the consultation, before meeting the HDHP deductible. As such, employers that sponsor HDHPs will want to consider the implications for HSAs if they decide to provide a telemedicine benefit.
Does using Telemedicine Disqualify You from Contributing to an HSA?
First, it is important to differentiate between two questions:
- CAN YOU OFFER A TELEMEDICINE PLAN ALONGSIDE AN HSA?
- CAN YOU PAY FOR A TELEMEDICINE PLAN USING HSA FUNDS?
Learn how Telemedicine Benefits Small Employers
To answer the first question, it is important to know that a telemedicine plan is not insurance. Also, telemedicine plans are not intended to replace your primary care physician or treat chronic or emergency conditions.
Because the limitations to HSAs apply to insurance programs that cover all out of pocket expenses, the first dollar coverage stipulation shouldn’t apply, but opinion among many insurance professionals varies on this interpretation. AllyHealth recommends that if you’re interested in this approach, you consult your insurance broker, consultant, or attorney for a more formal interpretation of this issue.
So, yes, you should be able to offer a telemedicine plan along with an HSA, but confirm this with your advisors.
The second question is a bit trickier and really depends on how your plan is designed. The regulations around HSAs like to see a direct correlation between money spent and services received. They don’t like money being spend on a program that gives you the right to use it, but rather, they like money being spent in a manner that you can see money going out in direct exchange for services coming in.
AllyHealth’s telemedicine service is designed with no copay for unlimited consults.
So, with that setup, you are paying for the right to use the service, rather than paying for each particular use (as you would with a copay). There is not a strict dollar out, services received relationship.
As a result, you cannot use your HSA funds to pay for the monthly membership for AllyHealth’s telemedicine plans, since it is set up without a copay requirement.
As a general rule, you cannot pay for a monthly telemedicine service with an HSA, but if your plan is set up where you have a copay for a consultation, you can pay that copay with HSA funds. For this reason, AllyHealth can offer pay-per-consult telemedicine plans for customers that feature qualified high-deductible health plans and health savings accounts. This way, they can take advantage of the exciting cost-savings potential of telemedicine but remain compliant.
Other Considerations About HSA’s and Telemedicine
The amount of money that is saved by each employee by not having to pay for doctors visits, even paying with pre-tax money, is much greater than the amount they save by having that money be tax-exempt. So, it’s much better for an employee to have to contribute less money to their HSA because they don’t need as much, than it is for them to contribute more, just because it’s tax-exempt.
While this is tricky, and we aren’t lawyers, we are confident that these guidelines are correct. As always, if you have any questions, you’re welcome to contact us.