How HSAs can help during a pandemic: The CARES Act and its impact on HSAs

As consumers struggle with the economic squeeze that the COVID-19 pandemic has put on their finances, it’s important for employers to communicate how their employees’ benefits may have been impacted by recent government relief efforts. This includes changes incurred by the 2020 Coronavirus Aid, Relief and Economic Security Act (CARES Act) and its impact on Health Savings Accounts (HSAs).

Over-the-counter products are now eligible expenses

With the passing of the CARES Act, HSAs can now be used to purchase over-the-counter (OTC) medicines that previously required a prescription from a physician, and for the first time, menstrual care products. This permanent change is retroactive to January 1, 2020.

One product that falls into a grey area of eligibility is vitamins. According to the IRS, OTC medicines must be for the diagnosis, cure, mitigation, treatment, or prevention of a disease and cannot be “merely beneficial” to the general health of an individual. However, if a medical provider deems a vitamin or supplement medically necessary for the treatment of a specific medical condition, the provider can complete a letter of medical necessity form and submit it with the patient’s claim.

While this benefit expansion will surely provide some relief, keep in mind that these changes will take effect gradually. Not all retailers will update at the same time, which may result in inconsistent shopping experiences. Such issues will likely resolve soon. For more information about HSA-eligible expenses, visit the HSA Bank website.

Telehealth services covered

The CARES Act also states that HSA-qualified high-deductible health plans (HDHPs) may now cover telehealth services before reaching the deductible, or an individual can choose to purchase and use telehealth services outside of their HDHP, without impacting their eligibility for an HSA. This exemption is valid until December 31, 2021. An HSA can be used to pay for qualified medical expenses accrued using these telehealth services. These instances are valid for all visits, not just COVID-19-related testing or treatment – another benefit for consumers.

Tax deadlines extended

Because the IRS extended this year’s federal tax deadline from April 15 to July 15, 2020, contributions to HSAs for 2019 will also be allowed until July 15 of this year. This gives employees more time to increase their savings to reach the maximum contributions of $3,500 for individual coverage and $7,000 for family coverage. It’s a good idea to check to see if your state income tax deadlines have also been extended. For more details on HSA contributions, see IRS Publication 969, Health Savings Accounts and other Tax-Favored Health Plans.

How can employers help offset costs?

The IRS Notice 2020-15 permits employers to cover expenses for testing and treatment of COVID-19 prior to satisfaction of the minimum deductible without disqualifying their HDHP. One option could be to offer a new, limited purpose, HSA-compatible COVID-19 Health Reimbursement Arrangement (HRA). Other options employers could explore to help employees with new, unforeseen medical expenses include the possibility of HSA funding acceleration, known as an HSA Advance, or providing discounts on out-of-pocket expenses.

Making a difference in a changing world

The COVID-19 pandemic and the resulting global response have drastically altered our lives and our businesses, both in short- and long-term ways. Federal and state governments have passed unprecedented relief measures. The CARES Act was implemented to help millions of people, and by sharing some of the bill’s highlights like the ones above, benefits administrators can really make a difference in their employees’ lives.

Chad Wilkins is President of HSA Bank, a division of Webster Bank.

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