Way back in June, 2017, I wrote a short “Question of the Month” regarding the eligibility of “Concierge Fees” for FSA reimbursement. As these arrangements pop up more and more, I’ve been researching and answering more and more broker questions.
Even in SBA’s own small town of Poulsbo, a major shake-up happened in our small doctor’s clinic where several physicians broke off to start their own Direct Primary Care (DPC) clinic. Patients of these physicians must decide to pay a monthly “Concierge Fee” for physician services in addition to insurance co-pays or deductibles or switch to a dwindling number of non-DPC physicians. One of my employees wrestled with this decision.
Given the growing trend, the Treasury Department and IRS issued proposed regulations addressing DPCs this past summer. While these regulations are still proposed, it’s worth revisiting this topic as it relates to our alphabet soup programs.
The “Why” of it:
In June, 2019, Executive Order 13877 was signed intending to improve price and quality transparency in healthcare. The Order states that it is the policy of the federal government to ensure that patients have the information requisite for choosing the healthcare they want and need. Subsequent proposed regulations, based on that Executive Order, include “certain types” (not defined) of DPC arrangements that are allowed to treat related medical expenses as eligible medical expenses under Code §213. You’ll recall that section of the code relates to expenses that are eligible for reimbursement of Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA).
The “What” of it:
The proposed regulations define a “direct primary care arrangement” as a contract between an individual and one or more primary care physicians under which the physician or physicians agree to provide medical care for a fixed annual or periodic fee/premium without billing a third party (e.g. an insurance company). A “primary care physician” is defined as a legally authorized doctor of medicine or osteopathy who has a primary specialty designation of family medicine, internal medicine, geriatric medicine or pediatric medicine. The definition of DPC arrangement does not include care provided by non-physicians such as nurse practitioners, clinical nurse specialists and/or physician assistants who provide primary care services. Non-primary-care physicians (e.g. specialists such as obstetricians and cardiologists) or non-primary care non-physicians (e.g. specialty care) are not included in the “primary care physician” classification. The proposed regulations state that if a primary care physician meets the definition outlined above, and the fee/premium isn’t submitted to, say, an insurance company, then the expense (e.g. a concierge fee) will be eligible for reimbursement.
The “When” of it:
When will these proposed regulations take effect? For now, they operate as a safe harbor. Final regulations will specify an effective date applicable to tax years that end on or after their publication date. It is believed unlikely to occur before the spring of 2021, at the earliest.
The “How” of it:
As an alphabet soup expert, I’m left scratching my head with how, when and if these regulations are finalized, we apply them to alphabet soup programs. It will surely have ramifications for HSAs, FSAs and even Health Reimbursement Arrangements (HRA). As a practical matter, as you will see below, it simply makes no sense at all for a DPC concierge fee to be an eligible Code §213 expense. Let’s look at why there are issues with the proposed regulations with respect to each of the programs.
Health Savings Accounts: If we take the proposed regulations as they are currently written and line them up with the HSA rules as they are currently written, a concierge fee would constitute “impermissible coverage,” rendering the participant ineligible to contribute to an HSA bank account. Why? A participant with a High Deductible HSA-qualified medical plan is required to have no other coverage to help them with the medical deductible. In the case of a participant utilizing a DPC, the concierge fee covers basic treatments, therefore those treatments are not applied to the medical deductible thus making them ineligible to contribute to an HSA bank account.
Flexible Spending Accounts: This proposed regulation would permit a concierge fee to a DPC to be an eligible medical expense under Code §213. Keep in mind, that this fee serves as a pre-payment for service. Since when is a pre-payment of anything an eligible expense? The one FSA eligible expense that resembles this is the monthly payment of an orthodontia contract. It is presumed that teeth bands are getting tightened each month of the contract thereby substantiating the monthly contract payment. The DPC fee is paid regardless of whether there is a medical visit during the FSA plan year. All Health FSAs require documentation to prove the medical necessity of expense happened during the year. Health FSAs also do not reimburse premiums. Allowing this reimbursement seems to be a contradiction to the Section 125 basic rules for adjudicating claims.
Traditional Health Reimbursement Arrangement: A traditional HRA must be integrated with a group health plan offered by the employer. It reimburses only the out-of-pocket medical expenses incurred while covered by that group health plan. The traditional HRA does not reimburse insurance premiums of any kind. Therefore, the language in the proposed regulations allowing for a DPC premium reimbursement directly contradicts the reimbursement rules for traditional HRAs.
Individual Coverage Health Reimbursement Arrangement (ICHRA): An ICHRA must only be offered to a group of employees where no group health plan is offered. If a DPC arrangement is a part of a group health plan, then it should not qualify as an ICHRA. Only individually owned health insurance policies purchased on the individual market or Medicare which meet the Minimum Essential Coverage requirements are eligible for reimbursement under an ICHRA. A DPC doesn’t meet the ACA’s requirement for Minimum Essential Coverage.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA): Employers with fewer than 50 employees with no group health plan in place can offer a QSEHRA which can reimburse individual medical health insurance premiums as well as insurance premiums through another group health plan (such as a spouse or parent’s plan). As with the ICHRA, if a DPC arrangement is, in fact, a group health plan paid for by the employer, then it should not qualify for reimbursement through a QSEHRA, and, conversely, if that employer offered a DPC, it would not be eligible to offer a QSEHRA because they offer a group health plan.
Surely someone will note the discrepancies and inconsistencies before these regulations are finalized. Until then, I’m standing my ground saying NO! to Direct Primary Care fees/premiums running through alphabet soup plans.