HSA Telemedicine Relief Language Adds to the Confusion . . . Again!

Congress has granted telemedicine relief again. But again, it creates an unintended gap in coverage.

Congress finally acted to allow insurers and employers to continue to cover telemedicine services below the deductible without disqualifying an HSA-qualified plan. That's the good news, as virtual visits that became popular during the pandemic remain so as patients realize the convenience of these interactions with providers when appropriate.

Unfortunately, as was the case with the last extension, the provision was inserted at the last minute into a huge omnibus (covering many unrelated topics) spending bill that no member had time to read and wasn't available in time for industry professionals to review the language. As a result of the text's being written by people who don't understand how medical-coverage renewals work, once again, the "solution" leaves gaps during which either telemedicine can't be covered below the deductible or enrollees are disqualified from funding a Health Savings Account for certain months.

[Note: Below the deductible means that the insurer or employer can reimburse providers in whole (no cost-sharing) or in part (for example, the balance after the patient pays a copay) before the individual or patient has satisfied the plan deductible. A diagnostic (non-preventive) service or treatment otherwise can't be reimbursed by the plan before the deductible is satisfied.]

Telemedicine and HSA-qualified Plans

Federal tax law requires that HSA-qualified plans apply all services except select preventive care to a deductible of at least $1,500 for self-only or $3,000 for family coverage (2023 figures). These diagnostic services or treatments include most office visits, lab work, and prescription drugs, plus all imaging, outpatient therapy, day surgery, and inpatient care.

With the arrival of Covid-19 in March 2000, most medical providers and facilities closed their doors to patients other than for emergencies and treatment of the novel coronavirus. As a result, tens of millions of patients seeking diagnoses or treatment for non-life-threatening conditions had no access to medical care except through virtual visits.

The 2022 Solution and Compliance Gap

The temporary pandemic relief for HSA-qualified plans ended with plan years beginning on or after Dec. 31, 2021. This created different expiration dates of the telemedicine exclusion, depending on the plan year.

Example 1: An HSA-qualified medical plan renewed Oct. 1, 2021. Telemedicine could be covered below the deductible through the end of the plan year on Sept. 30, 2022.

Example 2: An HSA-qualified medical plan renewed Jan. 1, 2022. The plan could not cover telemedicine below the deductible.

Congress addressed the issue in legislation passed during the first quarter of 2022. The relief wasn't based on plan years, as it was in 2020. Rather, Congress extended the exemption for telemedicine visits that took place between April 1 and Dec. 31, 2022.

This solution left a gap during the first three months of 2022 for plans that renewed during that span.

Example 3: An HSA-qualified medical plan renewed Jan. 1, 2022. The plan could not cover telemedicine visits below the deductible between Jan. 1 and March 31, 2022. Insurers or employers could modify the benefit package to allow below-the-deductible coverage during the last nine months of the plan year.

Example 4: An HSA-qualified medical plan renewed March 1, 2022. The plan could cover telemedicine visits below the deductible between Jan. 1 and Feb. 28, 2022 (the end of the 2021 plan year, covered by the original legislation), and again between April 1 and Dec. 31, 2022 (covered by the 2022 extension). But if the plan covered telemedicine visits below the deductible during March, the plan wasn't compliant during that month.

This approach meant that anyone whose medical plan renewed between Jan. 1 and March 31, 2022, and covered telemedicine visits below the deductible prior to April 1 was not covered on an HSA-qualified plan between the renewal date and March 31. It didn't matter what the insurer's or employer's plan documents stated or whether the plan included the term HSA in its name (e.g., The Saver 2500 HSA Plan) or even whether an enrollee accessed virtual care. The design itself was disqualifying.

People enrolled in such a plan were not eligible to fund a Health Savings Account during their span of ineligibility. Thus, enrollees whose plan renewed Jan. 1, 2022, would not have been HSA-eligible during January, February, and March. They would not be able to contribute for those months. Thus, they would have to prorate their contribution, depositing no more than 9/12 of their statutory limit.

There is an alternative contribution approach that might benefit Health Savings Account owners who wanted to contribute more than their prorated maximum. If they were HSA-eligible as of Dec. 1, 2022, they could leverage the Last-Month Rule. This provision states that anyone who's not HSA-eligible all 12 months of a calendar year but is eligible as of Dec. 1 can contribute to the statutory maximum. The Last-Month Rule can be used only if the individual remains HSA-eligible through the end of the following calendar year (December of 2023 in this case).

If an owner funds her account beyond the prorated maximum and loses eligibility during this testing period, she must include any excess contribution (beyond the statutory limit) in her taxable income and pay an additional 10% tax as a penalty. Unfortunately, this is a retrospective test, and owners generally don't know that they've failed the testing period until it's too late to correct the problem without incurring a penalty.

The 2023-2024 Solution and Compliance Gap

Amidst a second year of late-year pleading from the industry, Congress addressed the telemedicine eligibility issue again in late December for 2023 and 2024. But again, the legislation creates a presumably unintended gap. It allows all plans that renew Jan. 1, 2023 (calendar-year plans), to cover telemedicine visits below the deductible beginning Jan. 1. But plans that renew later in 2023 can't cover telemedicine visits below the deductible between Jan. 1, 2023, and the plan's renewal date.

Example 5: An HSA-qualified plan renews Jan. 1, 2023. The plan can continue to cover telemedicine visits below the deductible throughout 2023.

Example 6: An HSA-qualified plan renews July 1, 2023. The plan can't cover telemedicine visits below the deductible between Jan. 1 and June 30, 2023. It can then resume covering them below the deductible beginning July 1.

Thus, anyone not covered by a calendar-year plan labeled HSA-qualified can't contribute to a Health Savings Account for any month prior to the 2023 renewal if the plan covers telemedicine visits below the deductible prior to the renewal. Thus, in Example 6 above, if the plan covered telemedicine visits below the deductible throughout 2023, anyone enrolled wouldn't be HSA-eligible in 2023 before July 1.

Effect on Health Savings Account Contributions

Health Savings Account owners can contribute for any month that they satisfy eligibility requirements as of the first day of the month. If the telemedicine exception doesn't apply during a month (even if the enrollee doesn't have a virtual visit) and the insurer doesn't modify the plan to require the patient to pay for the service at the contracted rate, the owner isn't eligible to fund her account that month.

Example 7: Lindsay's self-only plan renews March 1, 2023. It covers telemedicine visits below the deductible during January and February. Lindsay is not eligible to fund her Health Savings Account during those months, even if she doesn't access the service. She thus can't deposit more than 10/12 of the maximum contribution ($3,208.33, rather than the statutory maximum of $3,850) to her account based on 10 months of eligibility (but continue reading for an alternative approach that she can take).

Health Savings Account owners who aren't eligible all 12 months of the calendar year may have a second option, as noted above. They can use the Last-Month Rule to contribute more than their prorated maximum for calendar year 2023 if their medical coverage wasn't HSA-qualified during all 12 months of the year. They can fund their account up to the statutory maximum if they remain eligible through the testing period (the end of 2024). If they lose eligibility, they must include any contribution above the prorated amount in their taxable income and pay a 10% penalty.

Example 8: Lindsay (from Example 7) contributes the full $3,850 to her Health Savings Account in 2023. She remains HSA-eligible until Sept. 20, 2024, when she marries and enrolls on her new husband's non-HSA-qualified plan. She must include her excess contribution (2/12 of $3,850 = $641.66) in her 2024 taxable income and pay a penalty of 10% of the excess (or $64.16) as a penalty. Note that she can also contribute 9/12 of the yet-to-be-calculated 2024 maximum for that year because she remains HSA-eligible through September 2024.

Thus, the Last-Month Rule can erase the negative consequences of a plan that covers telemedicine below the deductible during months that the exception doesn't apply. That option, however, comes with the risk of a penalty if circumstances change and the owner doesn't remain eligible through the end of the testing period.

The Bottom Line

The extensions to the telemedicine exception have been needlessly complex. They have created confusion for insurers, employers, benefits advisors, and Health Savings Account owners. They've forced insurers to reconfigure their products to alter the treatment of virtual visits by month within plan years. And they haven't been able make those configuration changes proactively, resulting in reprocessing claims, issuing new explanations of payment (to providers) and explanations of benefits (to members) to reflect the retroactive application of cost-sharing on telemedicine visits to keep the plans compliant. Or insurers haven't made the necessary changes and account owners who contribute at or near the statutory maximum bear the responsibility for knowing the problem and addressing it to remain compliant.

The issue is solved for this year and next. But Congress will have to act again for insurers and employers to cover telemedicine visits below the deductible in 2025. Perhaps by then we'll have a solution with adequate lead time (whether temporary or permanent) that fills any potential gaps.

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