Sorry! This Doctor-Patient Relationship Is Disqualifying.

Direct-primary care arrangements remain disqualifying. Unfortunately.

Direct-primary care (DPC) arrangements continue to grow in popularity, driven by patients' desire to focus on health rather than sickness and physicians' desire to practice medicine without external constraints. And the benefits of DPC arrangements dovetail nicely with HSA-qualified and other medical plans that shift costs to patients in the form of higher deductibles and coinsurance. But their design and the administrative interpretation of the implications of these relationships disqualify Health Savings Account owners from funding their accounts.

Defining Direct-Primary Care

Under a DPC arrangement, patients pay a fixed monthly fee for access to their primary-care doctor. The fee often varies with age and perhaps medical status (a diabetic, for example, may be charged a higher monthly fee than a patient with no chronic conditions). Typical monthly fees can range from $25 for a small child to $150 or more for adults.

In exchange for this fee, patients receive unlimited primary care, typically including

• office visits,

• consultations via phone, e-mail, and video,

• a comprehensive physical exam,

• simple routine lab work,

• and support services, which may include patient support groups for specific illnesses and a social worker to assist patients with social determinants of health, including food and housing security.

It's important to note that this type of arrangement is disqualifying whether it's called direct-primary care or not.

Also, DPC is different from concierge medicine, although the terms are used interchangeably (and sometimes either term is applied to the same arrangement). As commonly understood, in a concierge arrangement, a patient pays a monthly or annual fee and the doctor, in turn, provides some additional services like same-day appointments, an enhanced annual physical, and perhaps access via e-mail. But the doctor usually is part of a physician network and bills services through the patient's insurance company.

Benefits of a DPC Arrangement

DPC practitioners aren't part of a hospital- or physician-based network and don't deal directly with insurance (though they may provide patients with paperwork necessary to file a claim directly with an insurer). Nor are they paid for each service that they deliver, so that compensation is a function of how many tests they order or how many times they meet with a patient. These features offer some important benefits to patients:

1. DPC physicians aren't constrained by insurer reimbursement levels to limit the time that they spend with each patient. And they can work with patients by whatever means are most effective for doctor and patient, not based on which services an insurer reimburses.

2. Because DPC doctors aren't part of a network, they're not compelled or pressured to refer patients to specialty care or diagnostic imaging or lab work within a referral circle (or tied to patient-management software whose default referral is within the network). They can steer patients based on cost and quality. This feature is important as the prices of these services increase. Patients directly (through deductibles and coinsurance) or indirectly (through higher premiums) pay for higher prices, which in the medical market bear no relationship to higher quality.

3. DPC physicians are motivated to maintain or improve patients' health, since a doctor isn't paid more if she sees a patient weekly rather than quarterly. This incentive encourages the use of efficient approaches like remote and patient self-monitoring of conditions, which can increase compliance and identify potential medical issues quickly.

4. DPC practices are more proactive than other physician offices in addressing the whole patient, including access to a social worker to tap community resources. Insurers don't reimburse physicians who help patients qualify for public resources like food and housing assistance that can affect health.

So, What's the Problem?

The issue with DPC relationships is that three presidential administrations since implementation of the Affordable Care Act in 2010 have defined a DPC relationship as coverage (insurance). Their rationale: Individuals pay a monthly amount (let's call it a premium) in exchange for receiving unlimited medical care. In regulators' eyes, that's the very definition of an insurance relationship: a fixed monthly fee in exchange for receiving all medically necessary care.

Fortunately for patients (but unfortunately for those who want to open and fund a Health Savings Account), these services are offered without additional patient cost-sharing. Thus, a patient who has entered into a DPC relationship has chosen a second form of coverage that provides care before the patient has satisfied a deductible of at least $1,600 for self-only or $3,200 for family coverage (2024 figures). Even if the individual is otherwise HSA-eligible (she's enrolled on an HSA-qualified plan, isn't covered by Medicare or her own or a spouse's general Health FSA, and doesn't qualify as another taxpayer's tax dependent), she can't fund a Health Savings Account.

Also, she can't pay her monthly DPC fee from her Health Savings Account on a pre-tax basis. Any distribution for DPC fees is not a qualified expense, and thus is included in taxable income (and subject to an additional 20% tax as a penalty if the individual isn't disabled or at least age 65).

Potential Antidotes

The Affordable Care Act doesn't explicitly disqualify DPC arrangements. That determination was made by the Obama Administration (executive branch). Officials in the Trump Administration reviewed the Obama decision, hoping to find a justification to reverse the disqualifying status. It couldn't. Thus, the practical remedy is through statute (new legislation).

DPC advocates have proposed legislation for nearly a decade. The provision has been incorporated into larger Health Savings Account bills that passed in the House of Representatives in both July 2018 and September 2023. The 2018 effort died when the Senate, still in Republican control, didn't act on the bill. The 2023 bill has been forwarded to the Senate. It's not expected to pass as standalone legislation, though sometimes specific provisions of such legislation are tacked onto larger healthcare, tax, or budget bills late in the year.

The Bottom Line

It's unfortunate that a physician-patient relationship that delivers medical and financial benefits to patients disqualifies anyone covered from opening and funding a Health Savings Account. But perhaps not all is lost. Congress hasn't passed a fiscal year 2024 budget yet (the fiscal year started Oct. 1) and must pass other legislation to reauthorize certain agencies and programs before the end of the calendar year, so this approach is possible. As DC insiders often describe this situation, "There'll be multiple trains leaving the station. The question is whether the engine is big enough to pull this provision."

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The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity.