IRS Issues Guidance on Expenses Related to COVID-19 and Preventive Care
On June 23, 2023, the Treasury Department and IRS issued Notice 2023-37, which provides that for plan years ending after December 31, 2024, a high-deductible health plan (“HDHP”) will no longer be permitted to provide coverage for COVID-19 testing and treatment under the HDHP before the minimum HDHP deductible is met without jeopardizing a participant’s HSA eligibility. In addition, in Notice 2023-37, the Treasury Department and IRS clarified that the preventive care safe harbor does not include screening (i.e., testing) for COVID-19, effective as of June 23, 2023 (the date that Notice 2023-37 was issued). However, this clarification will not be relevant for HDHPs/HSAs until the first plan year ending after December 31, 2024.
COVID-19 Testing and Treatment Relief for HDHPs Ends After 2024
In general, if a plan sponsor voluntarily chooses to cover COVID-19 testing and treatment under an HDHP without participant cost-sharing, this could jeopardize the HSA-eligibility of individuals enrolled in the HDHP. During the pandemic, however, the IRS addressed this issue in Notice 2020-15. Under Notice 2020-15, HDHPs may cover testing and treatment of COVID-19 before the minimum HDHP deductibles are met without jeopardizing the HSA-eligibility of individuals enrolled in the HDHP. See our previous client alerts here and here. However, Notice 2020-15 states that the relief will only last “until further guidance is issued.”
Further guidance came in Notice 2023-37. In Notice 2023-37, the Treasury Department and IRS reasoned that because the COVID-19 national emergencies and public health emergencies have ended, the relief under Notice 2020-15 is no longer needed. Accordingly, Notice 2023-37 modifies Notice 2020-15 to provide that the relief under Notice 2020-15 applies only with respect to plan years ending on or before December 31, 2024.
As a result of Notice 2023-37, calendar year HDHPs must subject COVID-19 testing and treatment to the minimum HDHP deductible beginning with the 2025 plan year. However, non-calendar year HDHPs will be required to make this change sooner because their 2024/2025 plan year will end after December 31, 2024. For example, assume that a non-calendar year HDHP’s plan year ends on August 31. The HDHP relief under Notice 2020-15 will only be applicable until the plan year that ends on August 31, 2024.
Preventive Care Safe Harbor
Notice 2023-37 also clarifies that the preventive care safe harbor does not include screening (i.e., testing) for COVID-19. In the past, the IRS has issued Notices defining what is permissible preventive care that HDHPs can pay before the minimum HDHP deductible is met. In Notice 2004-23, the IRS provided a “preventive care safe harbor,” which provides that preventive care includes screening services, but generally does not include any service or benefit intended to treat an existing illness. The Appendix to Notice 2004-23 contains a list of infections for which screening services fall under the preventive care safe harbor. In Notice 2023-37, the Treasury Department and IRS point out that screening for common and episodic illness, like the flu, are not on the list. According to Notice 2023-37, since COVID-19 is not like the infections listed in the Appendix, screening for COVID-19 does not fall under the preventive care safe harbor.
This clarification is effective as of June 23, 2023, which is the date that Notice 2023-37 was issued. However, the clarification will not be relevant until the first plan year ending after December 31, 2024 because the HDHP relief under Notice 2020-15 will continue to be effective until that time. In other words, HDHPs can continue to cover COVID-19 testing before the minimum HDHP deductible is met for plan years ending on or before December 31, 2024 without jeopardizing the HSA-eligibility of individuals enrolled in the HDHP.
If you have any questions about IRS Notice 2023-37, HDHPs, or HSAs, please contact a member of the Miller Johnson employee benefits practice group.