IRS Hopes to Create New Way to Pay for Routine Care

The Internal Revenue Service hopes to give workers a new way to pay for health care: letting them use ordinary health reimbursement arrangements (HRAs) to pay for direct primary care program memberships.

The IRS proposal could help a worker lock in everyday health care costs for a year, while owning low-deductible major medical insurance, or major medical insurance with a very high deductible.

The proposal could also help primary care doctors reduce the amount of time and money they spend on billing insurers and patients for specific services. The doctors could simply ask the patients to pay the direct primary care program membership fee on an annual, quarterly or monthly basis.

Those doctors could focus solely on providing care through direct primary care arrangements, and stop working directly with health insurers, or they could work with insurers only when delivering unusual or advanced forms of care outside of the direct primary care arrangements.

The IRS has described the proposal in a notice of proposed rulemaking published today in the Federal Register.

Resources

• A copy of the proposed HRA regulations is available here.
• An article about efforts to help people use health savings accounts to pay for direct primary care arrangements is available here.

Comments on the proposal are due Aug. 10.

The proposal contact people are Richard Gano IV , an income tax and accounting specialist at the IRS Office of Associate Chief Counsel, and  William Fischer, an employee benefits specialist at the IRS Office of Associate Chief Counsel.

Definitions

The federal government is offering taxpayers a growing number of types of accounts they can use to pay for health care with employer contributions or personal contributions that aren’t taxed.

The best known personal health account may be the health savings account (HSA). A taxpayer must use an HSA together with health insurance that comes with a minimum deductible and limits out-of-pocket expenses, including deductibles, to a maximum level.

For this year, the minimum self-only deductible for HSA-compatible coverage is $1,400.

The self-only out-of-pocket spending limit is $6,900.

Meanwhile, the annual out-of-pocket limit for individual major medical insurance is $8,150.

The IRS currently forbids HSA owners from using HSA funds to pay direct primary care fees, because it sees a direct primary care arrangement as being a low-deductible or no-deductible health plan.

Another challenge is that the cheapest, highest-deductible individual and family major medical policies available have annual out-of-pocket spending limits that are too high for the policies to be used together with the HSA.

The HRA is similar to the HSA, in some ways, but the HRA account value is owned by the employer that set up the HRA program, not the employee.

An employee can use an ordinary HRA together with any no-deductible, low-deductible, medium-deductible or high-deductible health insurance.

The administration of Donald Trump has promoted use of one type of HRA, the qualified small employer health reimbursement arrangement (QSEHRA), and the individual coverage health reimbursement arrangement (ICHRA). Holders of QSEHRAs and ICHRAs can use their HRAs to pay for individual major medical coverage.

Phil Eskew of DPC Frontier LLC, a blog the supports increased use of direct primary care practices, has argued that whether a worker can use QSEHRA and ICHRA to pay direct primary care fees today appears to be unclear.

The Proposed Regulation

The IRS says it would help people use HRA money to pay for direct primary care fees by declaring that payments for direct primary care arrangements are expenses for medical care under Internal Revenue Code Section 213.

“Because these payments are for medical care, a health reimbursement arrangement (HRA) provided by an employer generally may reimburse an employee for DPC arrangement payments,” the IRS says in an announcement of the proposed regulation.

The regulation would also let HRA holders use their HRAs to pay for health care cost sharing ministry memberships.

Health care cost sharing ministries take contributions and use various means to distribute support to members. A provision in the Affordable Care Act recognizes the existence of the ministries and lets members of some of the ministries use the memberships to avoid paying the penalty the ACA once imposed on many people who failed to have what the federal government classified as adequate health insurance, or minimum essential coverage.

Considerations

Here are some questions that letting people use HRAs to pay for direct primary care arrangements may raise for players in the traditional health coverage community.

• Will the arrangements help make primary care doctors happier, and their practices more profitable?
• Will the arrangements hurt insurers’ and health plans’ efforts to protect enrollees from seeing bad providers, or providers who are lying about their credentials?
• Will the arrangements cut down on health plans’ ability to know which enrollees are on track to need inpatient hospital care, or expensive specialty care?
• How will states or other agencies verify that the direct primary care practices have the resources needed to provide the services promised?
• How can the direct primary care practices keep traditional insurers from unfairly trying to push expenses toward them, and how can traditional insurers keep direct primary care practices from unfairly trying to push expenses toward them?
• Can a health insurer or employer plan buy and run a direct primary care practice itself, and simply combine the captive direct primary care practice with traditional health coverage?

Many states have exempted health care cost sharing ministries from most of the laws and regulations that apply to secular businesses. For members of the traditional health coverage community, the top question is how regulators can respect the ministries’ religious freedom while increasing the odds that the ministries will work the way members expect them to work.

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