IRS Provides Short-Term Relief for HSA Eligibility in Maryland (Benefit Alert)

Posted in: Benefit Minute, Employee Benefits

Current Maryland insurance law requires all policies issued or renewed in the state after January 1, 2018 to provide coverage for male contraception and sterilization procedures without being subject to any cost-sharing requirements (including the deductible).

This mandate created a question as to whether such plans could still be considered Qualified High Deductible Health Plans (QHDHP) under current IRS guidance and uncertainty regarding the eligibility of individuals covered by these plans to make Health Savings Account (HSA) contributions or receive employer HSA contributions on a tax favored basis.  As a reminder, only fully-insured plans issued in Maryland are impacted.

On Monday, March 5, the IRS issued Notice 2018-12 which addresses state male contraception and sterilization coverage mandates and how they impact the requirements for a health plan to be considered a QHDHP. The Notice clarifies that any health plan which provides benefits for male sterilization or male contraceptives without being subject to the deductible is not considered a QHDHP under current guidance, even if the coverage is required by state law.

However, the Notice provides transition relief for any individual who was covered, is now covered or will be covered by a plan which otherwise would qualify as a QHDHP except for the sole reason that it also provides “free” state-mandated male contraception and sterilization coverage. Individuals covered by such plans remain eligible to make and receive tax free contributions to an HSA, so long as all other requirements are met, for all periods prior to January 1, 2020.

The Maryland legislature is currently considering a bill which would exempt insurers in Maryland from having to provide male contraception and sterilization coverage without cost-sharing in QHDHPs. The impact of this IRS notice on that legislation is not yet known. Maryland legislators will likely continue to address this issue now that the IRS has stated that this mandate violates current QHDHP guidelines and adversely impacts HSA eligibility.  In the meantime, affected employers sponsoring QHDHPs can be reassured that they can continue to contribute to HSAs and permit pretax HSA contributions for their employees through calendar year 2019.