Popular primary-care offerings that give patients greater access to doctors could be thwarted by tax law that prevents people from also capitalizing on tax-advantaged health savings accounts.
These facilities, which include national outfits like One Medical Group Inc. and small local practices, provide a range of primary-care services to members for monthly fees that typically range from $50 to $150. Memberships generally cover checkups, quick appointments, and often some medications and lab tests. Members also generally have traditional health insurance to cover high-cost care like hospitalization.
Doctors are paid directly by members, without billing health insurers. Direct primary-care doctors number close to 2,500, according to Julie Gunther of sparkMD in Boise, Idaho, who is president of the Direct Primary Care Alliance.
Industry participants are concerned that the nascent business model could be endangered unless the law is changed to ensure that direct primary-care arrangements can be used by people who also use other forms of tax-favored health-care accounts that consumers control.
A recent Internal Revenue Service proposed rule said employers could reimburse employees for primary-care memberships through health reimbursement arrangements. But the rule also makes it clear that members of direct primary-care arrangements are prohibited from making tax-deductible contributions to health savings accounts (HSAs).
Tax-friendly health savings accounts are attractive because they allow people to shelter money that can then be used to cover medical expenses. About 28.3 million HSAs existed at the end of 2019, according to a spokeswoman for the Employee Benefit Research Institute. At the end of 2018 the accounts had an average balance of $2,803, the organization said in a report in January.
Better Care at Lower Cost
Companies that use direct primary-care arrangements say they provide better care for employees at lower cost than just providing comprehensive health insurance plans.
Superior Packaging & Finishing, a Braintree, Mass., company that produces packaging materials, has saved $370,000 over the past year by self- funding coverage for its approximately 85 health plan members and adopting a direct primary-care plan, Donald Charlebois, the company’s owner and president, said in an interview. The company spent about $1.2 million on health care for its employees in 2019, the prior plan year, he said.
In addition to receiving good access to primary-care doctors, the approximately 60% of employees who enrolled in the plan pay no copayments or deductibles, and they receive better direction in navigating the health-care system, Charlebois said. About 75% of employees are expected to enroll in the plan in the fiscal year starting Aug. 1.
But Superior Packaging & Finishing doesn’t use high-deductible plans or HSAs, and chief financial officer Robert Najarian said in the interview that HSAs could “potential undermine what we’re trying to accomplish.”
Employees who aren’t in the direct primary-care plan accounted for about 80% of the company’s health claims costs over the past year, Charlebois said.
Health Reimbursement Arrangements
Employers also have access to a tax-friendly tool to cover medical expenses for their workers. The IRS is proposing that this tool could cover primary-care memberships.
Under a health reimbursement arrangement, or HRA, employers can set up employee accounts, and workers can use them for out-of-pocket medical expenses. Employers can claim the reimbursements to employees as tax deductions, and workers get them tax free.
The IRS issued the proposed rule because “employers were not allowing people to use their HRA to pay for direct primary-care arrangements,” William Sweetnam, legislative and technical director with the Employers Council on Flexible Compensation, said in an interview. Sweetnam was a benefits tax counsel at the Treasury Department during the George W. Bush administration.
“This puts it right in black and white” that health reimbursement arrangements can be used to fund direct primary-care arrangements, Sweetnam said.
One or the Other
But the IRS proposal also said employees wouldn’t be able to to make tax-deductible contributions to health savings accounts if they are also using direct primary-care arrangements.
Some health insurance brokers and primary-care doctors are alarmed by the IRS’s approach, fearing it will hinder the development of the direct care plans.
“This is a very bad thing,” Jennifer Spiegel Berman, an attorney and health insurance broker who is chief executive officer of MZQ Consulting in Pikesville, Md., said in an interview.
Like high-deductible health plans, direct primary-care arrangements allow patients to use insurance to cover only high costs for things such as hospitalizations or serious diseases like cancer, Berman said.
Direct primary care is “a great way” to control spending because doctors don’t have an incentive to increase procedures to make more money, she said.
Decoupling direct primary-care arrangements from health savings account eligibility means that people “have to pick between these two options,” Berman said.
Alexa Faraday, an internist who began a concierge medical practice in Towson, Md., in 2012 after working for a hospital, argued that forcing people to choose between direct primary-care plans and health savings accounts is counterproductive with providing better care.
Concierge plans, while not addressed by the IRS proposal, are similar to direct primary-care arrangements in that people pay annual fees to visit their doctor without using insurance.
People in concierge and direct primary care plans are paying out of their own pockets to cover their health care, Faraday said. “This is exactly skin in the game.”
Need New Law
The IRS’s interpretation parrots current law, which may need to be amended by Congress. In order to have a health savings account, people must sign up for high-deductible health plans, which generally have lower premiums but also require enrollees to meet high annual deductibles before any claims are paid.
The purpose behind high-deductible plans and health savings account is to entice people to be better shoppers for health-care services, said Sweetnam, who was also tax counsel of the Senate Finance Committee when health savings accounts were enacted in 2003.
Direct primary-care arrangements provide coverage without meeting the required deductible levels of high deductible health plans. That’s why the IRS made it clear in the recent proposal that direct primary-care plan members can’t make tax-deductible contributions to the accompanying health savings accounts, Sweetnam said.