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Clarity lacking in IRS rules


Many benefit consultants feel the Internal Revenue Service's description of prescription drugs considered preventive is too vague and are dissuading their employer clients from adding drug coverage to their HSA-qualified plans.

The consequences could be severe for plan members if the IRS decides some of these drugs are not preventing illness and are being prescribed to treat existing medical conditions.

In addition to losing the favorable tax treatment of their HSA contributions, financial penalties may be assessed on plan members. It also could expose employers and high-deductible health plan administrators to plan member suits.

Although the likelihood of an HSA plan member being audited in connection with their HSA deduction is remote, if that does happen, there could be dire consequences, warns Jay Savin, a principal at Towers Perrin in St. Louis, Mo.

Mr. Savin advises employers to ask the vendor providing the drug list "to indemnify you against all lawsuits connected to their guidance."

But Ed Fensholt, senior vp and director of compliance services at Lockton Benefit Group in Kansas City, Mo., said an employer should be safe "as long as it has a good faith argument that the drugs that they are paying for below the deductible are considered preventive."