Benefits and Compensation

IRS Clarifies HSA Preventive Care Rule, Provides Transition Relief

Male sterilization and male contraceptives are not considered “preventive care” for health savings account (HSA) purposes, the Internal Revenue Service (IRS) confirmed in Notice 2018-12. However, the March 5 notice also provided transition relief for applicable fully insured plans at least through the end of 2019.


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The result is that fully insured high-deductible health plans (HDHPs) in at least four states—Illinois, Maryland, Oregon, and Vermont—will no longer be considered HSA-eligible HDHPs. These states had enacted insurance mandates that require coverage of male sterilization/contraceptives.

Recall that HSA-related preventive care under Section 223 of the Internal Revenue Code is limited to those items that have been defined in guidance from the IRS or U.S. Department of the Treasury. To date, that guidance is found in only two notices: Notice 2004-23 and Q&A-26 and -27 of Notice 2004-50. The preventive health services mandate in the Affordable Care Act (ACA) requires nongrandfathered plans to provide first-dollar, 100% coverage of in-network services as defined by three governmental agencies. But in Notice 2013-57, the IRS provided a crosswalk between the HSA and ACA rules, concluding that a plan complying with the ACA will not jeopardize HSA eligibility even if the preventive health service is not in the preventive care notices from 2004.

In the past 2 years, those four states enacted what amounted to a male sterilization/contraceptive mandate (before the deductible is met) for fully insured health plans. Some had argued that these services were a logical extension of the IRS preventive care definition. However, Notice 2018-12 makes it clear that is not the case.

While the transition relief provides only a temporary crosswalk between these state laws and HSA rules, the relief does apply retroactively to any prior or current policy or plan year in which state-mandated fully insured coverage included these benefits. The relief deadline is intended to give these (and perhaps other) states time to enact corrective legislation. The relief applies regardless of whether the HDHP is employer provided or individual coverage (including presumably coverage through the Health Insurance Marketplace).

The relief comes as good news to employers with fully insured HDHPs in those states. Without the relief, they would have been in the unenviable position of having to comply with a state law or a federal law, unable to comply with both. HSA participants would have been the big losers; they would have been deemed HSA ineligible for every month in which the HDHP offered the mandated coverage. Most would have faced a situation of having to correct excess contributions.

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