October 13, 2020
Council Urges Support for Direct Primary Care Arrangements at Treasury/IRS Hearing
At an October 7 public hearing held by the U.S. Treasury Department and the Internal Revenue Service (IRS), the Council testified in support of employers’ ability to offer direct primary care (DPC) arrangements, in addition to the traditional health coverage they offer.
As explained in the June 10 Benefits Byte, Treasury and the IRS issued proposed regulations earlier this year regarding the treatment of amounts paid for certain types of medical care arrangements (including DPC arrangements) as medical care under the Internal Revenue Code. For this purpose, a DPC arrangement is defined as a contract between an individual and one or more primary care physicians under which the physician(s) agree to provide medical care for a fixed annual or periodic fee without billing a third party.
The proposed regulations provide that amounts paid for DPC arrangements constitute medical care under the tax code, which generally means that a payment for a DPC arrangement may be reimbursed by a health reimbursement arrangement (HRA). However, Treasury and the IRS also stated that, in most cases, an individual with a DPC arrangement is not eligible to contribute to a health savings account (HSA). The proposed regulations follow from a June 2019 executive order.
In response, on August 10, the Council submitted written comments explaining that a number of employers offer DPC arrangements – in connection with the traditional health plans they offer – to address various health care challenges, including limited availability of care in a geographic location, employee populations with a high incidence of chronic conditions and cost issues for lower-income employees.
The Council’s comment letter noted that these programs have been a valued benefit for employees and have the potential to reduce health care costs, while emphasizing that the inability of individuals with a DPC arrangement to contribute to an HSA is a significant barrier to the potential value of DPC arrangements, The Council is continuing efforts in Congress to address this issue and asked the Administration to continue to work to address this issue as well. The comment letter also sought clarity on a number of issues, including the limited circumstances in which a DPC arrangement will not render an individual ineligible for an HSA, among other topics, as summarized in the August 11 Benefits Byte.
In the October 7 hearing the Council reiterated the key points made in our comment letter, including the value of DPC arrangements to employers and employees, the need to remove the HSA barrier and requests for additional clarity. A number of other stakeholders also testified in support of DPC arrangements, including other employer groups and primary care physicians. Although Treasury and IRS officials on the hearing panel were relatively quiet, they did note that the rulemaking at issue relates to the definition of qualified medical expenses under the tax code, rather than to HSAs, and alluded to the fact that their ability to address the HSA issues regulatorily may be limited by the Code.
A number of the almost 30 speakers at the hearing addressed other topics covered by the proposed regulations as well, including healthcare sharing ministries. No indication was given as to when final regulations might be issued, but over 12,000 comments have been filed, which Treasury and the IRS will need to review and consider.
We also note that, in tandem with the Council’s regulatory efforts regarding DPC arrangements and as explained in the Council’s recently updated policy recommendations, we have been advocating in Congress for the ability of individuals to retain HSA eligibility while covered by a DPC arrangement and our efforts on that front continue.
If you have any questions about the hearing or about the Council’s efforts regarding DPC arrangements more generally, please contact Katy Johnson, senior counsel, health policy.