HR 3708: Is Pre-Deductible Coverage of Direct Primary Care a Feature or a Bug of The Primary Care Enhancement Act?

Aren’t HSAs intended to empower patient choice? Enabling plans and employers to influence the patient’s selection of primary care physician seems antithetical to this purpose.

DPC practices are rightly concerned about the numerous limitations HR 3708 would impose on their innovative model.  Yet, the limitations on HSA-eligible DPC arrangements are needed “to keep the cost score estimate of the legislation down,” the flawed argument goes.

But the tax impact occurs when dollars are put into an HSA and not when they are spent, so why so much fuss? Yes, the bill would cause more people to become eligible to fund their HSAs tax-free. That would indeed be a source of lost tax revenue. However, wouldn’t the cost in lost tax revenue be about the same irrespective of how a DPC arrangement is designed, assuming patients are funding their HSA up to the modest limits allowed per year anyhow?

Yes, but…. One ingredient baked into the legislation that isn’t getting discussed much is how HR 3708 would allow employers and insurers to pay for DPC pre-deductible (as opposed to the patient paying from their HSA), notwithstanding existing HSA rules that generally prohibit coverage of medical care before the deductible is met.

This would cause DPC to be treated differently, under IRS code, than almost any other type of care.  

For instance, if a patient with an HSA needs an MRI, the employer or plan cannot pay for it (without potentially triggering tax penalties for the patient) unless the patient has already met his or her deductible for the year. This is intended to help empower the patient to shop for the best MRI option using his or her HSA dollars. 

But under HR 3708, Direct Primary Care would be treated differently, and the employer or plan would be able to pay for DPC  — pre-deductible — without jeopardizing enrollees’ ability to contribute pre-tax dollars to their HSA . That could hand additional power to the employer or plan to steer the patient to “in-network” DPC options only, instead of empowering patients to pick one on their own, using their own HSA dollars. 

In addition, an employer paying for DPC as a health benefit (or through increased premiums to an insurer) would indeed create a direct relation between the cost of a DPC agreement and lost tax revenue. As an agreement becomes more expensive, or as premiums go up, the lost tax revenue increases. Hence, limitations are said to be needed to curb this and to stop what is supposed to be a high-deductible plan from essentially having no deductible at all.

But there is good news. This bug in the legislation may point to an opportunity for a fix that would kick most of the poison pills to the curb. Perhaps a first step to a solution would be changing the bill so that it requires HSA-eligible DPC agreements to be paid for from the HSA, or with after-tax dollars, at least until the plan’s deductible has been met.

As previously noted, this aspect of HR 3708 — that makes DPC coverable pre-deductible — may be one of the reasons for all the limitations being included in HR 3708. The limitations are there, perhaps in large part, to stop insurers and plans from calling anything and everything “DPC” and thus being able to cover anything and everything pre-deductible, bypassing HSA rules that don’t allow coverage pre-deductible for most types of medical care. 

So, then if you get rid of the provision in HR 3708 allowing DPC to be covered pre-deductible, in HSA eligible coverage, then the need for all the limitations largely drop away.

How about this:

Change this provision in HR 3708 from:

“(i) IN GENERAL.—A direct primary care service arrangement shall not be treated as a health plan for purposes of subparagraph (A)(ii). 

to something along the lines of [new text in brackets].

“(i) IN GENERAL.—A direct [patient] care service arrangement [paid for with Health Saving Account funds, after tax dollars, or by an eligible plan after the deductible is met] shall not [disqualify an individual from being an eligible individual described in Section (a)] .  

Doing this might allow most if not all of the other problematic limitations in the bill to be taken out.

Another change that would be welcome would be to expressly define DPC as an eligible medical expense under 213(d), instead of an exempt type of insurance plan under 213(d).

The 2015 version of the Primary Care Enhancement Act (HR 365) did this well, as follows:


(a) In General.—Section 213(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(12) PERIODIC PROVIDER FEES.—The term ‘medical care’ shall include periodic fees paid to a primary care physician for a defined set of primary care medical services provided on an as-needed basis.”.

Instead, of following the above example of  HR 365, HR 3708 uses this flawed language below to purportedly accomplish the same thing.

(b) Direct Primary Care Service Arrangement Fees Treated As Medical Expenses.—Section 223(d)(2)(C) is amended by striking “or” at the end of clause (iii), by striking the period at the end of clause (iv) and inserting “, or”, and by adding at the end the following new clause: “(v) any direct primary care service arrangement.”

But what this does is add DPC to the list of insurance plans in 223(d) that can be purchased with HSA funds instead of expressly defining DPC as a medical expense under 213(d)(2).

Here’s the provision in context of the statute it changes, Section 223(d)(2)(C) of IRS Code:

There are a number of special interests that want DPC to be a pre-deductible benefit in an HSA-eligible plan., so the above changes may be easier said that done. Nonetheless, this may be another reason to modify HR 3708 besides the reasons previously expressed by others. 

Of course, in the long run it would be fantastic to see all limitations taken off of HSAs (a goal Chip Roy’s Health Freedom Act works toward). But until then, it appears to create more problems than it solves to give some types of care beneficial treatment over others under IRS code.

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