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More and more employers are covering maintenance medications at 100% in health savings account-qualified high-deductible health plans, despite IRS rules that limit such coverage only to preventive medicines and medical services.
Under Section 223(c) of the Internal Revenue Code, only “preventive” health care and prescriptions are exempt from the deductibles in HDHPs with HSAs. If the IRS were to enforce these rules, plan member and employer contributions to HSAs would lose their tax-favored status, experts say.
However, without a definitive list of what the IRS considers to be preventive medications, some employers are treating certain drugs such as statins used to lower cholesterol as preventive so that they are not subject to the deductible in HDHPs, benefit consultants report.
Mercer L.L.C.'s 2013 National Survey of Employer-Sponsored Health Plans shows that the percentage of employers that are treating maintenance medications as “preventive” has been steadily increasing in recent years. As of last year, 42% of employers with 500 or more employees were not subjecting certain maintenance medications considered to be preventive to deductibles in HSA-qualified HDHPs, up from 31% in 2012. Very large employers with HSA-qualified HDHPs were even more likely to use a liberal definition of preventive medications, Mercer found, with 57% covering them at 100% in 2013, up from 46% in 2012.
“Our data shows that for very large employers with HSA plans, 57% are covering preventive drugs in some enhanced way,” said Sander Domaszewicz, a Mercer principal based in Irvine, California. “Several years ago, a health plan came up with a list and sent it to the IRS for approval, and they were met with silence.”
In 2007, two health sector companies had sought clarification from the IRS regarding which medications would be considered preventive and therefore exempt from the deductible in HDHPs. Many employers had concerns that if they offered HSAs without some sort of prescription drug coverage, plan members would forgo vital treatments because of cost. At the time, Franklin Lakes, New Jersey-based Medco Health Solutions Inc., since acquired by Express Scripts Inc., and Hartford, Connecticut-based Aetna Inc. presented their lists to IRS officials, but neither received any formal approval that the drugs they included met regulators' definition of preventive.
Because the IRS still has not published a definitive list of preventive medications, “every pharmacy benefit manager and health plan now has multiple lists — either aggressive or conservative — of what's considered preventive. In some cases, the PBM or the insurer will have employers sign off, just in case the IRS does crack down, so the plan sponsor is ultimately responsible. It's a "reasonability test,'” Mr. Domaszewicz said.
Some industry observers say the passage of health care reform, which eliminates cost-sharing for most preventive care services, may be contributing to coverage of certain maintenance medications outside of deductibles in HDHPs with HSAs. Under Section 2713 of the Patient Protection and Affordable Care Act, all health plans that are not grandfathered are required to cover without cost-sharing beginning on or after Sept. 23, 2010, preventive services identified by the U.S. Preventive Services Task Force, the Advisory Committee on Immunization Practices, the Health Resources and Services Administration's Bright Futures Project and the Institute of Medicine committee on women's clinical preventive services. These services include such drugs as contraceptives and medications used to prevent breast cancer recurrence, but other types of prescription medications that would be considered preventive are not specified.
Ed Fensholt, senior vice president and director of compliance services at Lockton Cos. L.L.C. in Kansas City, Missouri, said since the passage of health care reform, the IRS has been “pretty generous in how it defines a preventive medication. It was defined as a drug that is designed to prevent the onset of a disease, as well as to prevent the recurrence of a disease from which someone has recovered.”
That means that medications used to treat hypertension would typically be covered in a health plan as preventive “because it prevents strokes or heart disease, whereas for someone who has already had a heart attack, statins might be covered because it is preventing the recurrence,” Mr. Fensholt said.
Karrie Andes, Kansas City-based senior benefit manager at PGi, an Atlanta-based teleconferencing software provider, said her company decided to provide maintenance medications at no cost to its employees with chronic conditions, all of whom are enrolled in an HDHP with an HSA that is partly funded by the employer.
“So if you're taking diabetes, cholesterol, high blood pressure, any of those types of maintenance meds, you can get those free through home delivery,” Ms. Andes said during a session on consumerism held last month at the Self-Insurance Institute of America's conference in Phoenix. “Yes, I'm doing free prescriptions with the HSA.”
Lawmakers from the state of Washington are asking federal regulators to allow employers to offer direct primary care plans in conjunction with health savings account-qualified high-deductible health plans.