By: Kendall Jackson, Esq.

As we close out the first month of 2025 with a new administration, the vast number of new proposals related to reducing government spending is unsurprising. Only a week ago, two documents were leaked related to House Republicans’ “Spending Reform Options,” which provided insight into their policy objectives.

One proposal that was particularly significant was the goal to pass H.R. 5688, referred to as the Bipartisan HSA Improvement Act of 2023. While this bill has several objectives, the most notable may perhaps be to allow an individual to continue contributing to a health savings account (HSA), as part of a high deductible health plan (HDHP), while participating in a primary care service arrangement, such as direct primary care (DPC). This would be a big shift from the current regulations and would be very beneficial to individuals with HSAs.

Currently, Section 223(c) of the Internal Revenue Code provides that an individual who is covered under an HDHP may not be covered by any other health plan that (1) is not a high deductible health plan, and (2) which provides coverage for any benefit that is covered under the HDHP. Consequently, when a DPC is offered outside the employer’s health plan it is considered by the IRS to be a second health plan and impermissible “other coverage.” This structure often presents issues for employers seeking to offer access to a DPC arrangement in addition to an HSA-qualified HDHP because the threshold for creating a “group health plan” is very low, including essentially any program offered by an employer or association for the purposes of paying medical expenses.

Even if the DPC is offered under the employer’s health plan, as opposed to outside the health plan, it still presents issues. Under the IRS rules, an HDHP is prohibited from providing any first dollar coverage for benefits until the minimum deductible is satisfied. There is, however, an exception for preventive care, and other limited exceptions where first dollar coverage would be available under an HSA-qualified HDHP. However, since the services provided by DPC are not always considered preventive care, there will inevitably be times when the patient's care must be subject to the deductible. Considering DPC does not typically include a fee for service, there is no fee to apply to the deductible, which is problematic. To offer a DPC or other PEPM-based non-preventive service arrangement under an HDHP, the plan must find a way to hold participants responsible for the full cost of services received until the minimum deductible is met. This structure is often not pursued because this largely defeats the purpose of PEPM-based services.

With the host of issues noted above, the passing of H.R. 5688 would be a significant modification to the current regulations. Not only would the noted concerns be alleviated, but it would benefit individuals with HSA-qualifying HDHPs by allowing contributions to the HSA while simultaneously capitalizing on the availability of a primary care service arrangement.