With interest inconcierge care growing amidst the COVID-19 pandemic, theregulations could have a wide-ranging effect for clients interestedin concierge care. (Photo: Shutterstock)

In the latest of a series of guidance that generally expands theavailability and use of health reimbursement arrangements (HRAs),the IRS recently proposed regulations dealing with direct primarycare arrangements. More commonly known as "concierge care," a direct primary carearrangement allows an individual and a primary care physician entera contract to cover the cost of medical care for a fee (without theinvolvement of a traditional third-party insurance company).

With interest in concierge care growing amidst the COVID-19pandemic, the regulations could have a wide-ranging effect forclients interested in concierge care — they affect the medicalexpense deduction, availability of HRA reimbursements andeligibility for HSA participation.

Related: Proposed direct primary care regulations threatenHSAs

While the rules might initially seem advantageous, employers andemployees who choose to participate risk losing valuabletax-preferred health savings options — so should carefully evaluatetheir options before jumping in.

The proposal and concierge care 

Under the regulations, a direct primary care arrangement may beclassified as medical care or medical insurance. Classificationwould depend upon the facts of the specific arrangement. Forexample, an arrangement that provides only an annual physical examwould be classified as medical care, not insurance. Similarly, anarrangement that only covers specified treatment for a specificcondition would not qualify as "insurance."

Payments must be made to a primary care physician, which isdefined as one who specializes in family medicine, pediatrics,geriatrics or internal medicine.

Regardless of how the arrangement is classified, the paymentswould be eligible for HRA reimbursement. Further, they will beeligible for the Section 213 federal tax deduction for medicalexpenses — to the extent that the taxpayer's medical costs exceed7.5% of adjusted gross income for the tax year.

The regulations also address contributions to health caresharing ministries. These arrangements involve an agreement wheremembers (who often share similar religious beliefs) pool theirfunds by making monthly payments into a fund that will cover thehealth costs of other members. The health care sharing ministryitself must have existed as of Dec. 31, 1999, and qualify as atax-exempt 501(c)(3) organization.

The regulations clarify that these arrangements will be treatedas medical insurance for IRC purposes as long as members remaineligible for reimbursement even if they have developed a medicalcondition.

Look before you leap: Effect on HSAs

The IRS proposal would open the window for HRA reimbursement,but individuals covered by these arrangements would loseeligibility to contribute to an HSA under most circumstances.Individuals are only eligible to contribute to a health savingsaccount if they are enrolled in a high-deductible health plan(HDHP) and have no other comprehensive medical insurance.

HDHPs must impose certain strict limits on the annual deductibleand annual out-of-pocket expenses. If the participant has anotheroption available, HSA eligibility is lost. For many, HSAs provide avaluable tax-preferred savings option — one in which contributionscan even be carried over from year to year and used as a type ofretirement health savings vehicle.

If the employer pays the fees for the concierge care program,the arrangement could be classified as a group health plan. If thearrangement is classified as medical insurance, rather than limitedmedical care, HSA eligibility will also be lost because thearrangement will not qualify as an HDHP.

However, if the concierge arrangement only provides preventivecare services or certain types of disregarded coverage, theparticipant may be eligible to continue HSA contributions.

Adding to recent expansions in health options

The new IRS proposal adds to a growing body of rules that expandclients' ability to use HRAs, HSAs and health flexible spendingaccounts (FSAs) in the wake of the pandemic. The HSA-HDHP ruleshave already been changed to allow telehealth and remote healthservices to be provided without jeopardizing HSA eligibility.

Further, if an employee has unused amounts remaining in a healthFSA at the end of a grace period (or plan year) ending in 2020, aplan may permit employees to apply those unused amounts to pay orreimburse medical care expenses or dependent care expenses incurredthrough Dec. 31, 2020. Notice 2020-33 makes a change to the healthFSA carryover rules, so that the unused amount that can be carriedover to the following year will be indexed to inflation (increasingthe carryover amount from $500 to $550 for 2020).

Conclusion

In the wake of the pandemic, health care will likely continue toevolve. Clients interested in concierge care should continue tofollow the new proposed rules to see whether they are finalized ascurrently drafted.

___________________

Read more: 

• Personalized advocacy can lead to substantial costsavings
• 5 ways the CARES Act affects HSAs, FSAs andHRAs
• Benefit concierge services: Legal issues toknow