Male Sterilization and Qualified High Deductible Health Plans

We wanted to make you aware of an unresolved issue that could potentially impact HSA eligibility for your employees.  While insurance carriers and advisors hoped that this issue would be settled before January 1, 2018, the likelihood of that decreases with each passing day.

Due to a new Maryland insurance law, all fully insured health plans in Maryland must cover male sterilization procedures as preventive care without any cost sharing for plan years beginning on or after January 1, 2018.   Neither federal law nor any guidance from the IRS explicitly addresses whether male sterilization is a preventive care benefit (thereby permitting the services to be covered for free before the minimum deductible for a Qualified High Deductible Health Plan is met).  If the IRS takes the position that male sterilization procedures are not preventive care, then individuals enrolled in fully insured Qualified High Deductible Health Plans issued in Maryland (whether group or individual coverage) will not be enrolled in HSA-compatible coverage and will not be permitted to contribute to a Health Savings Account (HSA) for any month that they are enrolled in a plan that does not meet IRS requirements.

Insurance carriers offering fully insured plans in Maryland continue to market these plans as HSA-compatible but are including a tax warning advising that individuals may be subject to tax penalties if the male sterilization is not a preventive care benefit.  The Maryland Insurance Administration is aware of this issue and has requested a ruling from the IRS, but no response has yet been given.  In 2017, legislation was introduced to specifically exclude Qualified High Deductible Health Plans from this new Maryland insurance requirement, but the bill did not pass.  Any new legislative efforts to address this issue will not occur before January 2018.

This is a gray area.  It is possible that the IRS would take a broad view of the definition of preventive care under the Qualified High Deductible Health Plan rules and would not penalize employees because their plans include a questionable preventive care benefit, the IRS has not provided direct guidance and it is impossible to know what position the IRS would take on this issue.

Employers and their employees share responsibility for HSA eligibility.   An employer may contribute (including salary reduction contributions through a section 125 plan) to the HSA of an employee unless the employer has knowledge that the employee is not HSA-eligible.   Since an HSA is owned by an individual, it is ultimately the individual’s responsibility to properly report HSA eligibility on the Form 8889 (which is attached to the Form 1040) and to  determine the appropriate tax treatment.  Given the current uncertainty of this issue, employers offering fully insured Qualified High Deductible Health Plans issued in Maryland need to consider whether to provide employer contributions (including salary reduction contributions) to HSAs in 2018 and whether/how to communicate this unresolved issue to employees.  At this point, PSA cannot provide any information that is different from what is being provided directly from the insurance carriers.

Please note that fully insured Qualified High Deductible Health Plans issued outside of Maryland are not subject to this new requirement, so such plans are not impacted.  In addition, self-insured Qualified High Deductible Health Plans are not impacted unless the plan voluntarily included male sterilization without cost sharing (which we would strongly recommend against).

We understand that this may be frustrating to employers and their employees because HSAs provide a valuable tax benefit.  The number of employers and individuals  adversely impacted will only continue to increase during the year as more renewals occur.  We will keep you apprised of any new developments.  It seems that a legislative fix would be the best outcome, so concerned individuals may consider reaching out to the Maryland Insurance Administration or their state legislators to ask for resolution in the upcoming year.