Female doctor conducting a telemedicine visit with a patient on a computer

Congress extends telemedicine coverage through year-end

By William G. (Bill) Stuart

Q1 gap means some medical plans aren’t HSA-qualified – here are some options for employers

Early in the pandemic, a popular option for non-urgent medical care was through telemedicine (aka virtual medicine or telehealth). Congress responded by allowing HSA-qualified medical plans to cover non-preventive telemedicine visits below the deductible (services that diagnose, treat, or monitor an injury, illness, or condition), which allowed patients to receive medical care without paying the full price of virtual care. 

Employers and insurers could cover non-preventive telemedicine in full or apply a copay or coinsurance. This provision extended to all plan years that began in 2020 and 2021. However, when Congress didn’t renew it heading into 2022, the provision reverted to what had been in place originally.

In March, Congress passed an omnibus spending bill that kept the federal government funded until lawmakers approve a final budget. Although Congress addressed non-preventative telemedicine in the bill, the relief provided isn’t retroactive. Instead, it allows insurers and employers to cover non-preventive telemedicine below the deductible only between April 1, 2022 and December 31, 2022.

Unlike the original legislation, this new provision refers to a specific period of time. It doesn’t allow medical plans that begin during this period to continue to cover non-preventive telemedicine services below the deductible through the end of the plan year. The coverage expires December 31, 2022, regardless of when the plan year ends. It is unclear whether Congress will pass additional legislation further extending the coverage.

Implications for employers

The expiration of the original provisions on non-preventive telemedicine left employers whose plans renewed early in 2022 with a dilemma. They could either:

  • Amend their plans to apply the full price of non-preventive telemedicine services to the deductible; or
  • Continue to cover these virtual visits below the deductible and hope for retroactive relief from Congress.

Employers that chose the first approach (and their HSA-eligible employees) should face no compliance issues. But employers and their insurers which counted on retroactive congressional action and continued to cover virtual visits below their plan deductible may have created compliance issues for employees who enrolled in a plan with this design. This applies to all enrolled employees and their covered dependents, not just individuals who have used the non-preventive telemedicine benefit in 2022.

Implications for employees

Coverage under plan years that started April 1, 2021, or later aren’t affected by this gap. But plans with plan years starting between January 1, 2022, and March 31, 2022, and that cover non-preventive telemedicine below the deductible aren’t HSA-qualified plans during any part of that three-month period. Thus, employees enrolled aren’t HSA-eligible. This status has several implications:

  1. If the employee hasn’t established an HSA previously, they can’t open an HSA before April 1.
  2. Regardless of whether the employee already had an HSA or were opening their first one, they can’t deposit any contributions before April 1.
  3. The employee can’t accept an employer contribution before April 1.
  4. The employee can’t be reimbursed tax-free from their new HSA for any expenses – even qualified expenses – with a date of service before April 1 at the earliest.

Impacted employers are responsible for informing their HSA administrator that their medical plan wasn’t HSA-qualified coverage during the first quarter of 2022. Additionally, they should not fund these accounts before April 1. Employers should also ensure employees don’t make pre-tax payroll deductions to fund their accounts with personal contributions before that date.

Employees can choose one of two approaches to contributing to their HSAs when they’re not HSA-eligible all 12 months of the calendar year:

  1. Prorate contributions. Contribute no more than 9/12ths of the statutory maximum to reflect being HSA-eligible for only nine months of the plan year. Owners can contribute up to $2,737.50 (9/12ths of the $3,650 statutory maximum this year for self-only coverage) or $5,475 (9/12ths of the $7,300 statutory maximum in 2022 for family coverage).
  2. Leverage the Last-Month Rule. Fund an HSA beyond the prorated limit, up to the statutory limit. This approach relies on the Last-Month Rule, a provision that allows owners who are HSA-eligible as of December 1 to contribute as though they were eligible all 12 months of the calendar year. The caveat is that they must remain HSA-eligible through the end of the following year (i.e., December 31, 2023). If an employee fails to remain eligible during this testing period, any amount contributed to their HSA above the prorated limit (plus any earnings on that excess contribution) is included in their taxable income. In addition, unless they’re disabled or are age 65 or older, they face an additional 10% tax penalty.

Employers aren’t responsible for their employees’ compliance with federal tax law, nor required under federal tax law to educate employees about their choices. But employers may feel obligated to inform workers about potential design issues that may disqualify them from funding their accounts to the statutory limit in 2022.

Employer contribution solutions

If the HSA-qualified medical plan covers non-preventive telemedicine visits below the deductible, new employees shouldn’t establish an HSA before April 1. If employers share eligibility with an HSA administration partner, they should indicate that employees aren’t eligible to establish their accounts before April 1. The administrator can set up the accounts and employees can accept terms and conditions, choose a beneficiary, link a personal bank account, and set their payroll deductions to fund the HSA; but no money should move in or out of the account before April 1.

Employers also should determine how their employer contribution is calculated when an employee becomes HSA-eligible during the plan year. New hires and employees who have delayed eligibility due to disqualifying coverage (such as their own or a spouse’s general Health FSA) fall into the same category.

An employer’s Cafeteria Plan should spell out the rules. This document must have an HSA amendment if the employer allows employee pre-tax payroll deductions to fund their HSAs. Some employers who contribute to their employees’ HSAs per pay period simply turn on the funding when the employee becomes eligible.

If the employer provides lump-sum, semi-annual or quarterly contributions, it must determine whether employees receive those amounts in full only if they’re HSA-eligible as of the first date of the funding period or whether those amounts are pro-rated based on the amount of time during the funding period that they’re eligible.

Employer next steps

If an employer chose a plan that applied the full price of non-preventive telemedicine visits to the deductible, they’ve provided an HSA-qualified plan to their employees. Employers may want to check with their insurer if they’d like to offer non-preventive telemedicine services below the deductible for the balance of the calendar year; but they’re not required to do so.

If employers have selected coverage with a plan year that begins during the first calendar quarter of 2022 and covers non-preventive telemedicine visits below the deductible, hoping for retroactive relief, their employees have an eligibility issue, and both the employer and the employees may have a funding issue.

Employers should check with their benefits counsel to assess their compliance risk and to develop strategies to help them and their employees maintain compliance under the federal tax code.

 

William G. (Bill) Stuart is Manager, Planning and Business Analysis at Voya Financial. He has nearly three decades’ experience in employee benefits and had worked with Health Savings Accounts since their introduction in 2004. He chairs the American Bankers Association HSA Council’s compliance committee and is the author of HSAs: The Tax-Perfect Retirement Account.

This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/insurance decision.


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