The IRS released proposed regulations relating to Section 213 of the Internal Revenue Code (Code) regarding the treatment of amounts paid for certain medical care arrangements, including direct primary care (DCP) arrangements, health care sharing ministries (HCSM) and certain government-sponsored health care programs. The proposed regulations affect individuals who pay for these arrangements or programs and want to deduct the amounts paid as medical expenses under Section 213.

In the proposal, the IRS states that payments for DPC arrangements and for membership in an HCSM are expenses for medical care under Section 213 of the Code. Because these payments are for medical care, a health reimbursement arrangement (HRA) provided by an employer generally may reimburse an employee for DPC arrangement and HCSM membership payments.

Addressing health savings accounts (HSAs), the IRS notes that Section 223 permits eligible individuals to establish and contribute to HSAs. The legislative history to Section 223 states that “eligible individuals for HSAs are individuals who are covered by a high-deductible health plan [HDHP] and no other health plan that is not [an HDHP].” The legislative history also states that, “an individual with other coverage in addition to a high-deductible health plan is still eligible for an HSA if such other coverage is certain permitted insurance or permitted coverage.” The IRS explains that if an individual has coverage that is not disregarded coverage or preventive care, and that provides benefits before the minimum annual deductible is met, the individual is not an eligible individual.

The IRS says it understands that DPC arrangements typically provide for an array of primary care services and items, such as physical examinations, vaccinations, urgent care, laboratory testing and the diagnosis and treatment of sickness or injuries. This type of DPC arrangement would constitute a health plan or insurance that provides coverage before the minimum annual deductible is met, and provides coverage that is not disregarded coverage or preventive care. Therefore, an individual generally is not eligible to contribute to an HSA if that individual is covered by a DPC arrangement.

However, in the limited circumstances in which an individual is covered by a DPC arrangement that does not provide coverage under a health plan or insurance (for example, the arrangement solely provides for an anticipated course of specified treatments of an identified condition) or solely provides for disregarded coverage or preventive care—for example, it solely provides for an annual physical examination—the individual would not be precluded from contributing to an HSA solely due to participation in the DPC arrangement.

If the DPC arrangement fee is paid by an employer, that payment arrangement would be a group health plan and it would disqualify the individual from contributing to an HSA.