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Direct Primary Care Plans Aren’t Insurance, Physicians Group Asserts

AUG. 6, 2020

Direct Primary Care Plans Aren’t Insurance, Physicians Group Asserts

DATED AUG. 6, 2020
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August 6, 2020

CC:PA:LPD:PR (REG-109755-19)
Room 5203
Internal Revenue Service
P.O. Box 7604, Ben Franklin Station
Washington, DC 20044

RE: Certain Medical Care Arrangements (REG-109755-19)

Doctors 4 Patients Care Foundation (D4PCF) appreciates the opportunity to comment on the above captioned proposed rule (Propose Rule).1 D4CPF is a 501(c)(3) nonpartisan, nonprofit organization committed to unleashing human ingenuity in health care. D4PCF is the only health care policy think tank whose board is composed of practicing physicians who possess hands-on, practical knowledge of the American health care system. Through grant-supported continuing medical education conferences, D4PCF is the leading educator of physicians on Direct Primary Care in the nation, having trained more than 1,000 doctors in the practice model.

At the outset, we would like to thank the Trump Administration for its efforts to restructure the focus of the American health care system. Initiatives undertaken by this Administration have taken important steps to emphasize patient-driven and value-driven health care in ways that ensure that patients are engaged in their own healthcare decision making. D4PCF appreciates the Trump Administration's efforts towards “ensuring that patients are engaged with their healthcare decisions and have the information requisite for choosing the healthcare they want and need.”2

We disagree, however, with the Internal Revenue Service's (IRS) classification of direct primary care (DPC) arrangements as an arrangement that constitutes a “health plan or insurance” for the purposes of the ability of a taxpayer to deduct a contribution to a Health Savings Accounts (HSA). As explained in further detail below, a DPC arrangement is not a “health plan” or “health insurance,” and therefore individuals with DPCs are not “covered” by health insurance or a health plan within the meaning of section 223(c)(1)(A)(ii) such that it would disqualify them from contributing to an HSA. DPC arrangements, in fact, contain more elements of “preventive care” than other medical services and items that the IRS has recently characterized as “preventive care” subject to the preventive care safe harbor under section 223(c)(2)(C) of the Internal Revenue Code (Code). We request that the IRS clarify in the final rule that, after further consideration, individuals may contribute to HSAs and deduct those contributions while participating in DPCs.

I. BACKGROUND

A. Direct Primary Care Arrangements

DPCs involve a fixed-fee arrangement between providers and consumers, where the patient pays a periodic fee in exchange for a defined number of visits as well as office-based procedures and treatments. It generally includes all office based professional services for the prevention and management of disease, including associated in-office testing, procedures, related supplies and office-administered medications. It also typically includes technology visits via email, texting or video.

A majority of states have defined DPCs as containing three core features. Specifically, a DPC:

  • Is a contract between a health care provider and a taxpayer;

  • In which the health care provider agrees to provide primary care services to the taxpayer without billing a third party;

  • In exchange for a monthly subscription fee that is cancellable by the patient.

The DPC may charge taxpayers a different monthly subscription fee depending on categories such as whether the enrollee is a child, adult or senior, similar to how other service providers (e.g., amusement parks, restaurants, movie theaters, etc.) charge differently for children and adults. But, unlike a typical health insurance arrangement in which premiums are risk adjusted based upon the enrollee's health status, a DPC provider does not charge enrollees different amounts based on their health status: a 40-year old taxpayer with a chronic condition such as diabetes or congestive heart failure will be charged the same amount as an otherwise healthy 40-year old taxpayer, without any prequalification assessment made by the practice.

In exchange for paying the monthly subscription fee, a taxpayer is able to receive, on demand, services for their health care needs. Commonly provided services include routine and preventive health care services, including screening, assessment, diagnosis, and treatment for the detection and management of disease or injury. While this differs from the more traditional payment model in which providers are paid for the provision of a specific health care service, the monthly subscription fees paid to DPCs still constitute payment in exchange for primary care services rendered, or for the promise to receive primary services within the agreed upon timeframe.

Similar examples abound in the American economy:

  • Nearly every college in the nation requires students to pay a “student health fee.” That fee is separate from tuition, and frequently adjusted by the number or credit hours taken (i.e. risk adjusted based upon how much a student is on campus). Payment of that fixed fee gives the student unlimited access to the student health center for primary care services at no additional charge. The IRS has never treated this fixed fee arrangement as a second health plan disqualifying the student (or his or her parents) from the ability to make an HSA contribution and deduct that contribution. Were the IRS to take such a draconian position, it would effectively disqualify the HSAs of every family in the nation with a student in college.

  • Members of congress have access to the Office of the Attending Physician, for which they pay a fixed fee for primary care services. This office has been in existence for over 100 years. The IRS would effectively have to disqualify the deductions for HSA contributions of every member of Congress that uses the office if the agency were to conclude that this arrangement was a “plan” within the meaning of section 223(c)(1)(A)(ii).

  • Finally, many employers pay for an employee's membership in membership wholesale clubs, such as Costco, BJs or Sam's Club. This membership gives the employee access to free or discounted prescription medications. This has never been treated as an employer sponsored group health plan as the term “plan” is used in § 223(c)(1)(A)(ii).

B. Congress' Treatment of DPCs in the Context of Qualified Health Plans

Congress did not view DPCs as themselves providing health insurance coverage, but rather Congress viewed DPCs as direct payment for care. The Patient Protection and Affordable Care Act of 2010 expressly authorized Qualified Health Plans (QHPs) to offer DPCs as part of their plan offerings so long as the QHP complied with other applicable requirements for health insurance coverage.3

C. The Department of Health and Human Services' (HHS) Treatment of DPCs in the Context of Qualified Health Plans

In rulemaking, HHS aligned with Congress' view that DPCs themselves are not health insurance coverage by describing DPCs as an arrangement establishing a direct relationship between the patient and the provider without a health plan serving as the intermediary managing care. In the preamble to 2011 rulemaking, HHS described a DPC as involving an “arrangement where a fee is paid by an individual, or on behalf of an individual, directly to a medical home for primary care services. . . .”4 HHS further described “primary care services” as routine health care services, including screening, assessment, diagnosis, and treatment for the purpose of promotion of health, and detection and management of disease or injury.”5 Importantly, HHS did not indicate that a DPC arrangement involves a third-party entity, such as a risk-bearing insurance organization, that requires the payment of premiums to cover liabilities associated with policies they underwrite.

D. The IRS Proposed Treatment of DPCs in the Context of HSAs

In the Proposed Rule, IRS indicates that it views DPCs as an “arrangement that 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.”6 Accordingly, the IRS indicates that an individual may not contribute to an HSA if that individual is “covered” by a DPC arrangement, except in the limited circumstances in which the DPC arrangement:

[D]oes 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).7

II. DISCUSSION

For the reasons described below, individuals should be allowed to maintain their eligibility to contribute to HSAs and deduct those contributions while being a party to a DPC arrangement because a DPC is not “health insurance” or “health plan” coverage.

A. States have primary jurisdiction in the regulation of insurance and states that have considered whether DPCs constitute health insurance have determined that DPCs do not constitute insurance.

Congress has, for the most part, expressly delegated the regulation of “insurance”, including health insurance, to the discretion of the States. Since 1945, Congress declared in the McCarran-Ferguson Act8 that the “continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.”9 Later, in the Graham-Leach-Bliley Act,10 Congress affirmed the McCarran-Ferguson Act expressly stating that insurance regulation “remains the law of the United States.”11 Given Congress' delegation to the States to regulate insurance, state legislatures and state insurance commissioners are primarily responsible for ascertaining when a health “plan” or health “insurance” exists.

In a total of 29 States that have considered whether to designate DPCs as health insurance, all have decided that DPCs are not health insurance. Given the definition of a DPC described above, it is no surprise that States have concluded DPCs are not health insurance. This is particularly true given that DPCs do not involve underwriting. That is to say, they do not “pool” the risk of various individuals through adequate pricing of the risks and accurate calculation of loss experience and statistical probabilities.12 To the extent DPC providers charge taxpayers differently based on their age category, it is no different than how other service providers charge adults more than children or other similar age distinctions.

B. A DPC is not health insurance because it is not offered by a risk-bearing entity that medically underwrites individuals and uses premiums to offset liabilities.

Due to the central role state legislatures and courts play in defining 'insurance”, the Iowa Supreme Court's discussion of “insurance” in Huff v. St. Joseph's Mercy Hospital of Dubuque Corp.,13 posits a helpful framework for ascertaining when an arrangement constitutes “insurance” for the purposes of the IRS' construction of the term. In Huff, the Supreme Court of Iowa determined that a prepaid obstetrical contract plan where the hospital would agree to furnish all necessary maternal hospital services for seven days relative to childbirth for $400 paid at least fifteen days in advance of delivery was not insurance. Id. at 701. The Iowa Supreme Court stated that such contracts “do cover the risks of assorted complications but the principal benefit or effect is the hospital care as opposed to a minimal indemnity feature.” Id.

Under the framework articulated in Huff, DPCs cannot reasonably be construed as “insurance.” DPCs do not involve an “indemnity feature”, which is one of the key characteristics of insurance. Rather, the principal benefit of a DPC is the primary care the patient receives. It also bears noting that DPCs do not advertise themselves as insurance nor do they require that patients adhere to the terms of the DPC contract for a specified amount of time. To the contrary, DPC practices recommend that patients purchase comprehensive insurance coverage and expressly stipulate that the patient may opt-out of the DPC at any time. By contrast, a typical insurance plan will have fixed enrollment periods and generally only allow an individual to qualify for a special enrollment period allowing them to leave the plan in the case of a qualifying life event such as relocation for employment, a death in the family, or some other major life event.14

The underlying statutory language in the ACA clearly envisioned DPCs as something that would be paired with QHPs, indicating that DPCs themselves are not health insurance. Indeed, DPCs offered by QHPs can be most appropriately viewed as an innovative method to deliver primary care, which itself is a component feature offered by QHPs, but it is not the health insurance plan itself. For example, participation in a DPC does not constitute minimum essential coverage (MEC) because it only provides primary care and not the other basket of benefits essential to MEC.15

HHS also recognized in rulemaking that the payments associated with DPCs involved payments to providers, not health insurance companies.16 Providers, unlike health insurance companies, are not typically licensed as risk-bearing entities and therefore they do not have the necessary infrastructure in place that define health insurance carriers, such as a risk-based financing system. Thus, DPC payments, which are made directly to the provider and do not involve third-party billing, cannot appropriately be characterized as payments similar to premiums or other risk-based financing mechanisms. In other words, risk-based financing is a core feature of a “plan”, and DPCs do not involve such risk-based financing mechanisms.

Additionally, we note that DPCs do not involve third-party billing, which is another key characteristic of “health plans”. As described above and acknowledged by HHS, DPCs do not involve a third entity assuming the obligation of payment for the individual that participates in the DPC.

Therefore, because risk-based financing and third-party billing are key features of “health plans” as they are commonly understood, it would be inaccurate to characterize DPCs as “health plans” given that they lack these two key features. As explained below, in assessing whether an arrangement qualifies as “insurance”, Congress defers significantly to states.

C. The IRS does not treat DPCs as health insurance subject to the health insurance excise tax.

The IRS itself also does not currently treat DPCs as “health insurance” for the purposes of the health insurance excise tax under section 9010 of the Patient Protection and Affordable Care Act.17 Section 9010 of the ACA imposes an annual fee on “covered entities” that provide health insurance. IRS regulations define “covered entity” as an entity “with net premiums written for health insurance for United States health risks,” that also falls into one of several categories of entities.18 As an initial matter, DPCs do not have premiums, so they could not fall within this definition. Moreover, a DPC would likely not fall within the list of entities subsequently specified by the regulation:

  • A DPC is not a “health insurance issuer” within the meaning of section 9832(b)(2) of the Internal Revenue Code, defined as an insurance company, insurance service, or insurance organization that is licensed to engage in the business of insurance in a State and that is subject to State law that regulates insurance. . . .” (emphasis added)

  • A DPC is not an “insurance company subject to tax under part I or II of subchapter L” (taxing life insurance and other insurance companies).”

  • A DPC does not “provide[ ] health insurance under Medicare Advantage, Medicare Part D, or Medicaid.”

  • A DPC is not a “multiple employer welfare arrangement (MEWA).”

  • A DPC is not a “health maintenance organization” (“HMO”), because that definition includes “[a] similar organization [to an HMO] regulated under State law for solvency in the same manner and to the same extent as such a health maintenance organization” — DPCs are not required by most States to satisfy certain solvency requirements.19

D. The fixed-fee payment under a DPC is merely an innovative payment model to pay for healthcare services.

The IRS currently allows taxpayers to use HSA funds to pay for certain medical care that resembles payment for the primary care provided by DPCs. For example, commercial insurers have adopted Medicare's universal global surgical payment system that bundles preoperative, intraoperative, and postoperative care into a single payment amount. The global period can extend 92 days, and the physician is expected to treat surgical complications at no additional charge. The patient, consistent with their high deductible plan obligations, is expected to prospectively pay the bundled amount on the first day of the surgery. Importantly, the patient may make this prepayment for a bundle of future medical services with funds from their HSA. The IRS has never determined that the prepayment to the surgeon constitutes “health insurance” or a “health plan”. Similarly, the IRS has never determined that payment for maternity services, which is also made pursuant to bundled payment (except it is made retroactively, as opposed to prospectively), constitutes health insurance.

Although it is true that on occasion DPC practices may render more health care services than they are compensated for, this cannot be characterized as bearing risk in the traditional health insurance sense. All contracts are, in some sense, “insurance against future fluctuations in price.”20 In accepting the monthly fee, the DPC practice is betting that fixing its price at a certain amount will be more profitable than if it were to price its services separately and rely on fluctuating utilization. Charging a monthly fee also helps providers reduce overhead costs, such as administrative costs associated with processing payments for each service rendered. As the Iowa Supreme Court noted in Huff, “all insurance contracts concern risk transference, but not all contracts concerning risk transference are insurance . . . [e]ven in states having the broadest statutory or decisional definition of insurance, which if literally applied would include all or nearly all contracts transferring risk, many arrangements literally within such definitions are not treated as insurance transactions in legal contexts.”21

Therefore, consistent with how the IRS considers payment for surgical procedures and maternity services to be HSA-eligible, the payment for primary care services represented by a DPC should also be HSA-eligible; a DPC is simply an alternative fee arrangement that the DPC practice uses to contract with individual patients for the provision of primary care.

E. DPC arrangements should qualify under the Preventive Care Safe Harbor and the IRS should not discriminate against DPC arrangements that involve in-person care v. DPC arrangements furnished via telehealth.

Given the nature of DPC arrangements, DPC arrangements also arguably qualify as “preventive care” under section 223(c)(2)(C) of the Code, particularly in light recent guidance from the IRS establishing a more flexible definition for “preventive care” benefits. Specifically, the IRS recently exercised its interpretive authority under section 223(c)(2)(C) to consider certain medical care services and items, including prescription drugs, for certain chronic conditions to be “preventive care” that may be provided prior a deductible under a HDHP.22 DPC arrangements arguably involve more “preventive care” to patients than the services and items identified by the IRS in Notice 2019-45 since DPC arrangements are designed to ensure access to basic care to prevent the manifestation of more serious medical diseases.

DPC arrangements also heavily leverage telemedicine in the provision of services and such telehealth services now qualify as disregarded coverage under section 223(c)(1)(B) on a temporary basis. Section 3701 of the Coronavirus Aid, Relief, and Economic Security Act” (CARES Act)23 specifically provides that “telehealth and other remote care” constitute disregarded coverage that may be offered in connection with a HDHP for plan years beginning before December 31, 2021. It would be inconsistent if the IRS maintained that, on the one hand, DPC arrangements which provide in-person care may not be provided alongside HDHPs, while on the other hand, DPC arrangements which provide services via telehealth can be provided alongside HDHPs. However, this is precisely the inconsistency that the IRS' position produces. The IRS is effectively telling patients that they can participate in a DPC arrangement that provides telehealth services, but that they should dare not receive in-person care through a DPC arrangement or else that will disqualify them from contributing to a HSA and claiming a deduction for that contribution.

In summary, the IRS' position that DPC arrangements disqualify an individual from contributing to an HSA fails to recognize the preventive elements of DPC arrangements that qualify DPC arrangements under the preventive care safe harbor of section 223(c)(2)(C), especially in relation to other benefits which the IRS has deemed “preventive care” in 2019. Moreover, the IRS' position creates an inconsistency in how services that a DPC may offer are treated depending on whether they are furnished in-person v. via telehealth, and such an inconsistency runs contrary to Congress' intent that DPC arrangements increase Americans' access to care. Therefore, the IRS should clarify that DPC arrangements, regardless of whether they involve in-person care of telehealth, qualify as “preventive care” for the purposes of the preventive care safe harbor which may be offered by employers and which individuals may participate in without compromising their HSA eligibility.

F. “Direct Payment Arrangements” represents are more accurate description of fixed-fee arrangements than “Direct Primary Care Arrangements.”

The Proposed Rule proposes to define the term “Direct Primary Care Arrangement” as consisting of three components: (1) a contract between a physician and one or more primary care physicians; (2) under which the physician or physicians agree to provide medical care; (3) for a fixed annual or periodic fee without billing a third party.24 The IRS proposes to define “primary care physician” by reference to the Medicare program's definition of “physician” with a practice specialty in family medicine, internal medicine, geriatric medicine, or pediatric medicine.

Because many other physician specialties have also utilized fixed-fee arrangements, D4PCF suggests against limiting the definition to primary care, as proposed by the IRS. Although we recognize that Executive Order 13877 specifically uses the term “direct primary care arrangement,” in order to allow the marketplace to evolve, we would instead suggest the use of the term “Direct Payment Arrangements: A 'direct payment arrangement' is a contract between a patient and one or more physicians under which (i) periodic fees are paid to a physician for a defined set of medical services or for the right to receive medical services on an as-needed basis, and (ii) amounts prepaid for medical services designed to screen for, diagnose, cure, mitigate, treat, or prevent disease and promote wellness.” This would help ensure that other fixed-fee arrangements by other physician specialties are also recognized.

III. Conclusion

In summary, D4PCF disagrees with the IRS' proposed treatment of DPCs in the context of HSAs. DPCs do not constitute “health insurance” or a “health plan” and therefore do not disqualify individuals from contributing to an HSA. Moreover, the fixed-fees associated with DPCs are “qualified medical expenses” that may be reimbursed from HSA funds. We request that the IRS clarify in the final rule that, after further consideration, individuals may contribute to HSAs and participate in DPCs.

We appreciate the IRS' consideration of our comments and welcome the opportunity to discuss these matters with the agency in more detail.

Sincerely,

Lee Gross, M.D.
President of the Docs 4 Patient Care Foundation
1210 North Maple Road,
Ann Arbor, MI 48103

FOOTNOTES

185 Fed. Reg. 35398 (June 10, 2020).

2Id.

3§ 1301(a)(3) of the Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, codified at 42 U.S.C. § 18021(a)(3); see also 45 C.F.R. § 156.245.

473 Fed. Reg. 41866, 41990 (July 15, 2011) (emphasis added).

5Id.

685 Fed. Reg. at 35402.

7Id.

879 Pub. L. 79-15 (Mar. 9, 1945)

9See 15 U.S.C. § 1011.

10Pub. L. 106-102 (Nov. 12, 1999).

11See 15 U.S.C. § 6701(a).

12See e.g., SEC v. Variable Annuity Life Ins. Co. of America, 359 U.S. 65, 73 (1959) (underwriting of risk is an “earmark of insurance as it has commonly been conceived in popular understanding and usage”); Group Life & Health Ins. Co. v. Royal Drug, 440 U.S. 205, 214 n. 12 (1979) (“Unless there is some element of spreading risk more widely, there is no underwriting of risk.”).

13261 N.W.2d 695 (1978 Iowa).

14See e.g., 42 U.S.C. 18031(c)(6)(B) (specifying that Exchange plans have annual open enrollment periods).

15See 26 C.F.R. § 1.5000A-2(a).

1676 Fed. Reg. 41866, 41900 (July 15, 2011).

17Pub. L. 111-148 § 9010, 124 Stat. 119, 865-68 (March 23, 2010).

1826 C.F.R. § 57.2(b).

19Id. at § 57.2(b)(1).

20See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 367, (2002) (citing Richard Posner, Economic Analysis of Law 104 (4th ed. 1992)).

21Huff, 261 N.W.2d at 700 (citations omitted).

22“Additional Preventive Care Benefits Permitted to be Provided by a High Deductible Health Plan Under § 223,” IRS Notice 2019-45.

23Pub. L. No. 116-136 (March 27, 2020).

2485 Fed. Reg. at 35399; see also Treas. Regs. § 1.213-1(e)(v)(A).

END FOOTNOTES

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