Health Savings Accounts- HDHPs (Part 3)

Health Savings Accounts- HDHPs (Part 3)

by Posted on: September 18, 2014Categories: HR & Compliance   

This is a continued overview of eligibility rules for a health care plan to qualify as a high deductible health plan (HDHP).

Out-of-pocket Maximum

To qualify as an HDHP, the sum of the plan’s annual deductible and any other annual out-of-pocket expenses that the insured is required to pay, such as copayments and coinsurance but not premiums, cannot exceed the annual out-of-pocket maximum.

The IRS has clarified that copayments must be taken into account for purposes of an HDHP’s out-of-pocket maximum, even if the plan does not apply copayments to the deductible.

Example—Copayments: In 2014, a health plan has a $1,250 deductible for self-only coverage. After the deductible is satisfied, the plan pays 100 percent of UCR for covered benefits, minus a $20 copayment for doctor’s visits and a $100 copayment for emergency room visits. The plan does not take into account copayments in determining if the $1,250 deductible has been satisfied. The copayments must be included in determining if the plan meets the out-of-pocket maximum. Unless the plan includes an express limit on out-of-pocket expenses of no more than $6,350 (taking into account the copayments) the plan is not an HDHP.


Special rules apply to health plans that use a network of providers. Network plans may qualify as HDHPs even if they have an out-of-pocket maximum for out-of-network services that exceeds the HDHP annual out-of-pocket maximum.

Also, many health plans provide coverage for services only up to the usual, customary and reasonable (UCR) cost for the service. When the UCR cost is exceeded, the covered individual is generally responsible for paying the excess, even after the plan’s deductible has been satisfied. According to IRS Notice 2004-50, restricting benefits to UCR costs is a reasonable restriction on benefits. Thus, amounts paid by covered individuals in excess of UCR that are not paid by an HDHP are not included in determining maximum out-of-pocket expenses.

A health plan without an express limit on out-of-pocket expenses is generally not an HDHP, unless this limit is not necessary in order to prevent an individual from exceeding the required out-of-pocket maximum.

Example—No Out-of-pocket Maximum: For the 2014 plan year, a health plan provides self-only coverage with a $2,000 deductible and pays 100 percent of covered benefits above the deductible. Because the plan pays 100 percent of covered benefits after the deductible is satisfied, the maximum out-of-pocket expenses paid by a covered individual would never exceed the deductible. Thus, the plan does not require a specific limit on out-of-pocket expenses to insure that the covered individual will not be subject to out-of-pocket expenses in excess of the HDHP maximum.


Some health plans impose penalties or higher coinsurance payments on individuals who fail to obtain precertification for a specific provider or for certain medical procedures. According to the IRS Notice 2004-50, these penalties or increased copayments are not out-of-pocket expenses and do not count against the maximum out-of-pocket limit.



To qualify as an HDHP, a health plan cannot pay benefits until the required minimum deductible has been satisfied – with the exception of preventive care benefits. An HDHP may apply a low deductible (or no deductible) to its coverage of preventive care.

In Notice 2004-23, the IRS indicated that preventive care includes, but is not limited to the following:

  • Periodic health examinations, such as annual physicals (including tests and diagnostic procedures ordered in connection with routine examinations);
  • Routine prenatal and well-child care;
  • Child and adult immunizations;
  • Obesity weight loss programs;
  • Screening devices and tests (for example, cancer screening, heart and vascular diseases screening, infectious diseases screening, mental health conditions and substance abuse screening, and pediatric conditions screening); and
  • Tobacco cessation.

Preventive care does not generally include any service or benefit intended to treat an existing illness, injury or condition.

Under the Affordable Care Act (ACA), non-grandfathered group health plans are required to provide coverage for preventive care on a “first-dollar basis” (that is, without any copayments, deductibles or other cost sharing), effective for plan years beginning on or after Sept. 23, 2010. The ACA’s definition of “preventive care” is different from the IRS’s definition of “preventive care” for HSA eligibility purposes. IRS Notice 2013-57 provides that a health plan will not fail to qualify as an HDHP merely because it provides the preventive care services required by the ACA without a deductible.


Read Part 1 Here.

Read Part 2 Here.


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