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HSA Contribution Clarification & Transition Relief

(March 19, 2018) Eligibility to contribute to a health savings account (HSA) is, in part, contingent on the individual being covered by a high deductible health plan (HDHP) with a prescribed minimum deductible. With several states recently enacting laws requiring health insurers to cover certain male contraception and male sterilization without a deducible, individuals have found themselves covered by HDHPs, but unable to contribute to HSAs, and employers have found that they are offering HDHPs to employees who are ineligible to contribute to HSAs.

In response to the recently enacted state laws, the IRS has posted Notice 2018-12 confirming that a health plan that provides benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for a high deductible health plan (HDHP) required under the health savings account (HSA) contribution rules, precludes an individual from receiving HSA contributions under current requirements of Internal Revenue section 223(c)(2). But recognizing the conundrum, the IRS provides transition relief in Notice 2018-12 for periods before 2020, to individuals who are, have been, or become covered individuals of a health insurance policy that provides benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HSA compatible HDHP. As stated in the Notice 2018-12, for these periods, an individual will not be treated as failing to qualify as an eligible individual to contribute to an HSA solely because the individual is covered by a health insurance policy that fails to qualify as an HSA compatible HDHP solely because it covers male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP.

The transition period is to both offer relief to individuals who enrolled in a HDHP not knowing that the coverage for male contraceptives/sterilization would prohibit them from contributing to an HSA, and to allow states that require that male contraceptives/sterilization be covered without a deductible, ample time to change their laws in response to the notice as residents of these states may be unable to obtain health insurance coverage that meets the HSA eligibility requirements as the laws are currently written.