The delivery of non-emergency healthcare via telemedicine will become as ubiquitous as Uber within the next five years and will be one of the key ways to drastically reduce healthcare costs for employers and employees.
But the healthcare landscape is ever-changing, and the rules the ACA and the IRS have published about what employers need to provide and how it should be paid for are not always crystal clear. In the previous two years, telemedicine has become a much more common employee benefit and the existing regulations do not always directly address how services such as telemedicine might affect the tax treatment of a qualified HSA plan.
A common concern many have is that an employer-funded telemedicine benefit might invalidate the tax-exempt status of a qualified HSA plan. While at first blush this concern is understandable, upon a deeper review of IRS regulations it is clear that First Stop Health’s telemedicine benefit with a subscription model, with no co-pays or consultation fees, does not run afoul of the rules for two reasons:
Telemedicine does not constitute healthcare coverage; and
Telemedicine qualifies as an “excepted benefit”
Issue One: Does telemedicine constitute “healthcare coverage”?
The short answer is “no.” What constitutes healthcare coverage is not defined in the statute where HSA eligibility is set forth; however, it is defined by the Public Health Service Act (PHSA). The PHSA defines healthcare coverage as “benefits consisting of medical care ... under any hospital or medical service policy or certificate, hospital or medical service plan contract, or [HMO] contract offered by a health insurance issuer.” Telemedicine under First Stop Health is neither offered under any hospital or medical service policy or certificate nor under any hospital or medical service plan contract. Additionally, First Stop Health’s services are not provided pursuant to an HMO contract offered by a health insurance company and therefore cannot be considered healthcare coverage as defined by the Public Health Service Act.
Issue Two: Does Telemedicine qualify as an “Excepted Benefit?”
The IRS has carved out some exceptions where employers can provide benefits that do not require the “first dollar” to be paid by the patient who has a qualified HSA account. While telemedicine isn’t specifically listed, it is similar in many regards to an Employee Assistance Program (EAP). Final regulations were published in October 2014, addressing the treatment of benefits provided under an EAP. According to the regulations, benefits provided through an EAP are considered group health plan coverage and thus subject to various mandates including market reforms under the Affordable Care Act unless the EAP meets ALL of the following four criteria for being “excepted benefits”:
The EAP must not provide significant benefits in the nature of medical care or treatment;
The benefits cannot be coordinated under another group health plan;
No employee premiums or contributions may be required as a condition of participation in the EAP; and
No cost-sharing requirements must be imposed on employees.
The first point in this list is the most critical. In determining whether benefits are significant in the nature of medical care or treatment, the amount, scope, and duration of covered services are taken into account. While telemedicine generally can be an important tool in triaging medical concerns in an effort to control costs, it provides treatment for only a small set of conditions, can only treat conditions that can be diagnosed without physical examination of the patient, cannot provide ongoing or follow-up treatment, cannot test for certain conditions and can only prescribe a small subset of drugs. While telemedicine can be very useful for patients that have a non-emergency health issue, that is where medical care ends. The medical care and treatment via telemedicine is far from “significant.” Specifically, First Stop Health provides health advice services, and not significant medical benefits. First Stop Health links individuals to healthcare providers and patient advocates and coordinates the provision of those services as necessary and appropriate.
To address the second, third and fourth conditions, First Stop Health’s telemedicine program has been designed to operate outside of the major medical plans, is not paid or processed through the patient’s health insurance, nor do employees have to pay anything to have access to the service or to use the service.
First Stop Health’s approach of not allowing any co-pay or consultation fee not only makes sense to ensure qualified HSA plans are protected, but it also generates the highest utilization in the industry. First Stop Health has demonstrated that removing barriers (in the form of fees) between patients’ access to doctors generates utilization rates that are 700% higher than industry average.
For telemedicine to be successfully implemented and widely used within an organization, the first criteria that must be met is that it is completely free to the employee. As such, it must be implemented without co-pays or consultation fees and in accordance with the guidelines generally discussed in this article, such that the program does not interfere with HSA eligibility.