Tax Treatment of Direct Primary Care with Health Savings Accounts (HSAs)

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Source: The DPC Coalition

There is currently a lack of clarity in the tax code about how Direct Primary Care (DPC) agreements should be treated vis-à-vis Health Savings Accounts (HSAs).  The Internal Revenue Code (IRC) clearly states that HSAs must be paired with a high deductible health plan (HDHP).  Section 223(c) of the IRC also prohibits individuals with HSAs from having a second health plan to cover services not covered by the HDHP.  Current Treasury Department interpretation of the IRC treats DPC monthly fee arrangements like a second health plan, rather than a payment for a medical service.  As such, under current policy, individuals with HSAs are effectively barred from having a relationship with a DPC provider, because the DPC agreement makes the individual ineligible to fund the HSA. However, 23 states have passed laws defining DPC as a medical service outside of health plan or insurance regulation.  Regulations promulgated by HHS under the ACA, likewise define DPC correctly as a primary care service, not a health plan.

Furthermore, the code is unclear about whether monthly payments to physicians practicing under the DPC model are considered a “qualified medical expense.”  As such, under Sec. 213(d) of the IRC, employees might not be able to use their HSA funds to pay physicians using the DPC model.  The growing number of employers who offer their employees HDHPs paired with HSAs have had significant difficulty being able to offer DPC as a health benefit.

Clearly, when the regulations for HSAs were developed, DPC was not contemplated. IRS definitions should be updated so that the tax code is synchronized with other relevant state and federal laws.

Two parts of the Internal Revenue Code (IRC) need clarification to permit individuals who hold Health Savings Accounts (HSAs) to get high functioning Direct Primary Care:

  • DPC medical homes do not constitute a health plan under IRC Section 223(c), and;

  • Periodic payments to DPC practices for primary care services are to be treated as qualified medical expenses under Sec.213 (d).

SOURCE: https://www.dpcare.org/copy-of-policy

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