This is a question I’ve been asked often over the past three weeks. Everyone is talking about the Primary Care Enhancement Act. Below I’m going to explain some of the political strategy behind the current process, and offer a legal opinion about areas of concern. Remember that the 213(d) and 223(c) problems are related to tax stances taken by the PATIENT (and in some cases the patient’s employer) and NOT BY YOUR PRACTICE. This tax risk is NOT borne by the practice unless your practice wants to get into the business of writing up an indemnity risk shifting contract promising to pay any and all tax penalties, fees, and assessments related to the patient or employer’s decision to pair an HSA plan with DPC. Even if we drafted these documents I doubt a patient’s accountant or a legal department at a large employer, would be willing to trust the financial solvency enough of a small DPC practice with limited financial reserves to rely on the agreement. Also keep in mind that this kind of contract starts to “look like insurance” as well – albeit a different kind entirely.
DPC Frontier was designed to solve many legal uncertainties for fellow physicians by making hard-to-find legal information accessible in a freely available, well cited, readable and usable format. Too few attorneys take the time to understand DPC and paying for their education is not a cost new struggling DPC practices should have to bear. Did we HAVE to pass a DPC-defining “not-insurance” law in each state? No, but without question these efforts have lowered legal barriers to entry for new DPC practices and resulted in the accelerated adoption of DPC across the country.
Do we HAVE to have an HSA correction for DPC to continue to grow?
No, but this is a legal barrier to entry for patients and employers wanting to adopt DPC, and leaving the barrier in place when we could push most of it out of the way seems unwise to me. For many fellow physicians reading this without a legal or policy background – you should know that I am not upset with anyone for stating their opinion - whether this was through DPC Action, the DPC Alliance, the DPC Coalition, or any other groups such the AAFP or AAPS – all of which have taken varying stances on different versions of the PCEA and any number of legislative proposals related to DPC at the state and federal levels. I do fear that many of the opinions are expressed without a complete understanding of tax law and the corrections proposed. Just like the misguided patient who takes a little ibuprofen, has a little relief, and decides to take a lot of ibuprofen instead – I’d prefer that we all take the time to completely understand things now so that we don’t wind up with a GI bleed later.
I have written a treatise on the tax issues surrounding 213(d) and 223(c) on the tax page of DPC Frontier. The bottom of that page contains a timeline of events where the DPC Coalition asked various groups to write the IRS (Treasury) seeking clarification of these issues. These efforts did not result in any changes of opinion from treasury. I fear the same fate for the most recent letter sent from President Trump to the Treasury. This letter is merely a request that Treasury “potentially” include DPC as a 213(d) medical expense. If President Trump (a fan of DPC) could have made the correction on his own then he already would have made this correction. Unfortunately (just like everyone else) he is stuck asking Treasury to change their stance on this issue. Please read the executive order for yourself along with my initial comments here. (I’ve copied the most important paragraph below.)
- June 17, 2014 Letter to IRS from Sen Cantwell, Sen Murray, and Rep McDermott
- June 30, 2014 Response from IRS (John Koskinen)
- April 17, 2018 Second letter to IRS from Sen Cruz and Sen Johnson
- May 15, 2018 Response from IRS (Drew Maloney)
- Jan 4, 2019 Letter to IRS from the Docs 4 Patient Care Foundation
- Jun 24, 2019 White House Executive Order (see below & this blog post)
"Within 180 days of the date of this order, the Secretary of the Treasury, to the extent consistent with law, shall propose regulations to treat expenses related to certain types of arrangements, potentially including direct primary care arrangements and healthcare sharing ministries, as eligible medical expenses under section 213(d) of title 26, United States Code."
A letter from the Department of Treasury (like the two linked above) admittedly does not have the legal authority that is held by the actual language of the Internal Revenue Code (IRC) or a decision rendered by a tax court. These letters from Koskinen would not have much weight with a judge. It does create enough doubt and uncertainty to result in less adoption of DPC by employers and individual patients with HSAs. We cannot force the IRS to file suit against a DPC Patient to clarify this issue – only the IRS can perform an audit and elect to bring a tax court case forward. I do not think the IRS has the appetite to litigate this issue. They are content with this current state of uncertainty. The uncertainty – however small – is an advantage that works in their favor because it discourages the wider adoption and use of HSAs (and also DPC). Their chances of winning on a 213(d) argument (that DPC is not a medical expense) are likely around 1%, but their chances of convincing a tax court that DPC is a type of “health plan” pursuant to the definition of a health plan (broadly defined and different from an insurance plan) under 223(c) is probably closer to 10%.
If we want to remove all doubt that HSAs can be established and maintained by DPC patients, and also used to pay for DPC, then we need to simultaneously solve the 213(d) and 223(c) areas of uncertainty. I do not expect the executive order to solve either problem, and in its plain language it only asked for a 213(d) correction anyway. If you are only concerned about making FSAs and HRAs eligible for DPC, then there need only be a correction to section 213(d), but an HSA correction requires a 223(c) correction as well.
The exact same version of the PCEA that passed the House last year was used again by the House this year. By using the same language the bill did not need to be scored or debated again in the House. Sen Cassidy (a physician and Senate sponsor of the PCEA) shares everyone’s frustrations with the current language (which I have already discussed in detail here and here). We expect him to make corrections to the language of the bill to move it closer to its original language. In this post I am not digging into the details of the legislation I find problematic, because I have already discussed those items at length in the two posts linked earlier in this paragraph.
Is passing the PCEA “as is” worse than no bill at all?
No. Confusion around HSA tax laws are too often used by brokers, HR execs, attorneys and others to advise patients and employers to look to something other than direct primary care. More and more patients have HSA plans. For those with an FSA or HRA these both rely on the definition of a medical expense in 213(d) and these patients face hurdles to employer adoption of DPC as well. Are DPC practices growing across the country even without this correction? Yes, but in a linear (not exponential) fashion. I’m weary of discussing and explaining this issue. I imagine many of you are tired of it as well. The need to spend time understanding and explaining this issue and then enacting a work around for risk averse patients and employers often “kills the sale.” The need for workarounds to the HSA, FSA, and HRA problems are reduced for 99% of DPC practices with the PCEA in place.
The current workaround for a risk averse patient (or employer) with a health savings account is to redesign things so that you are charging on a cash pay fee for service basis. This is always clunky compared to the clean monthly membership fee preferred by most practices, but it can be done. If the PCEA were passed “as is” then these current work arounds (and simpler variations of them) would only be necessary for practices charging fees greater than $150 per month. There would be no difficulty dispensing medications unless your practice were bundling those medications into the monthly fee rather than charging for them on an itemized basis.
Federal tax law has no bearing on how states define insurance. A “health plan” with Treasury is a distinct definition from an “insurance plan” as defined by the state or a minimum essential coverage plan as defined by the Affordable Care Act. States with DPC laws only define DPC out of necessity to clarify a type of practice model that is “not insurance.” 99% of DPC practices are charging under the $150 per month mark.
Is passing the PCEA helping large “corporate” DPC practices more than independent practices?
No. Corporate practices can afford high legal fees. Corporate practices can afford to pay an attorney to investigate the issue and make a calculated risk that they would like to proceed in spite of the (small) risk of IRS litigation. They can afford to draft an indemnity agreement around a tax position and put up any necessary reserves as well. Small practices cannot bear these legal costs and are more likely to lose out on a new group of DPC patients that are now sent to a larger DPC operation.
Why should we care – this tax issue literally isn’t my (the DPC physician’s) problem?
Technically this is true, but I don’t like it when risk is unknowingly dumped on the purchaser of a product. I didn’t like it when curbside consult companies contractually forced family physicians to indemnify their company and the specialists physicians that worked for it without appropriately disclosing this risk to the family physician. I don’t like it when we watch our patients take on uninformed tax risks either – even when we think the risk might be very low.
When I first began discussing this problem I had DPC practices (small ones – not the large corporate groups) that were furious I was bringing it up at all. They argued that we should keep patients as ignorant as possible on this issue and do our best to bury it. I couldn’t disagree more. This is not fair to our patients.
For those attending DPC Nuts & Bolts to 2.0 in mid-November I should let you know that I will be racing through lots of legal and policy updates in my Friday presentation on Nov 15th. That presentation will NOT include an in-depth discussion of 213(d) and 223(c) because these are hackneyed topics that have been discussed at length previously and it is not my intent to start a debate about them in that format. It will include a deep dive into many new issues - most importantly surrounding physician dispensing, medical malpractice, and proposed changes to the Civil Monetary Penalties law that could have wide spread implications regarding a DPC physician’s decision to Opt-Out of Medicare. Feel free to post your thoughts or comments below and I will offer my opinion in this forum for everyone to easily access. I do not plan to engage much on this topic in social media forums.