The IRS has issued its proposed rule as directed by a prior President Trump Executive order which I previously discussed here. This proposed rule is entitled DEPARTMENT OF TREASURY Internal Revenue Service 26 CFR Part 1 [REG-109755-19] RIN 1545-BP31 Certain Medical Care Arrangements. We (the DPC community) have sixty days to provide comments. From the outset this proposed rule was never going to be able to solve our HSA problem due to a lack of authority. The IRS used their 26 pages to do a fairly good job articulating aspects of the authority problem, but they did not spend enough time clarifying the rule going forward.
Authority - President Trump never really had the legal authority to make a correction. This was why the executive order was worded softly. Treasury was directed “to the extent consistent with law” to propose regulations to include DPC arrangements as eligible medical expenses under IRC section 213(d). Treasury danced around the issue in many delicate legal ways, clarifying concepts that are hard for many to understand. The feds admit that they really do not have any definition of insurance (it has always been defined at the state level) so they default to a broad (conservative) definition pointing out that payments for a service can be deemed insurance payments by the IRS even though those same payments are not made to an actual insurance company but rather a medical practice. They go on to clarify that this conservative interpretation of insurance of course has no bearing on state insurance law (a messy concept that I have attempted to articulate during Q&A sessions at conferences for years).
Clarity - The IRS has done a poor job defining DPC. They are attempting to distract the DPC community by launching a hackneyed scope of practice war that has no place in this discussion and also by inviting us to comment on “other types of relationships that are similar” to DPC. Do not waste your time attempting to educate the IRS about the difference between physicians, nurse practitioners, and physicians assistants. Do not waste your time trying to tell them the difference between DPC and concierge models. They already know the difference in both instances. The IRS does not have the time for this food fight and neither do we. No self respecting tax court would declare that DPC provided by a physician was a 213(d) expense while DPC provided by a nurse practitioner was NOT a 213(d) expense. This is laughable. Their discussions of section 213(d) and 223(c) could have been clearer. They also completely overlooked section 3701 of the CARES act which provided a broad (temporary) 223(c) exception for all teleheath and “other remote care services."
What’s NOT new? For our patients to continue to fund an HSA while members of a traditional DPC practice we need congress to pass a bill. Patients were already able to spend HSA dollars on itemized items such as labs, meds, radiologic testing, per visit fees, preventive medicine fees, etc. The 213(d)(1)(A) category they have described was indeed already available for memberships that were limited to annual physicals and condition specific “courses of treatment.” (AKA chronic care management codes and global surgery payments.) The 213(d)(1)(D) medical insurance membership category really isn’t helpful because it applies to 99% of DPC practices and still carries the original 223(c) problem. Patients are not worried about being able to spend down an HSA specifically on DPC services after they have joined a DPC practice (and this is all you gain if you only solve the 213(d) problem), they want to be able to continue contributing to an HSA moving forward after joining a DPC practice (this is only solved with a 223(c) correction).
For an HSA correction to happen 223(c) and 213(d) must both be corrected. FSAs and HRAs have definitions that are tied only to 213(d) and NOT to 223(c). Note that a variety of HRA exceptions were already in place; this first included QSEHRAs and then in early 2020 EBHRAs became a tax favored option that could be used when DPC services were provided in an on site clinic format.
What’s new? Now that the IRS is ditching almost all aspects of the 213(d) argument essentially any HRA or FSA plan can be used by DPC patients.
If you want to see my full analysis please check out my three page summary (color coded with quotes and references) of the 26 page proposed rule. While my medical degree is still my favorite, my law and accounting degrees certainly came in handy for this review. Tax law can be rather dense, and there is a reason it isn’t tested on the bar exam and most attorneys prefer to avoid it as much as possible. Please feel free to comment below with your thoughts or questions!
Phil Eskew, DO, JD, MBA