7 Areas of Medical Care Regs Ripe for Change, Group Says

COMMENTS ON REG-109755-19, CERTAIN MEDICAL CARE ARRANGEMENTS

Internal Revenue Service
Department of the Treasury

August 7, 2020

Joel Allumbaugh
Visiting Senior Fellow

Steve Gerlach, Esq., LL.M
Bernstein, Shur, Sawyer & Nelson, P.A

Josh Archambault
Visiting Senior Fellow

Brian Blase
Visiting Senior Fellow

Opportunity Solutions Project (OSP), a nonpartisan advocacy group supporting free enterprise and work over welfare, strongly supports the goals of this proposed rule to allow for more flexibility for patients to access the health care they want and need. We agree with creating equity between the tax treatment of amounts paid for direct primary care (DPC) arrangements and health care sharing ministries with the tax treatment of most health insurance premiums. As such, we believe the approach in the regulatory guidance will provide significant benefits to health care consumers in the United States.

Our comments are directed at furthering the aims of the proposed rule and focus on a few areas in which the department requested comment and a few others that deserve extra attention before finalizing the rule. If done correctly, this rule has the potential to provide several benefits to patients with unique health needs, including older adults and people with chronic illness.

1) Direct Primary Care Arrangements Should Include Other Primary Care Providers

The proposed regulations limit the definition of "direct primary care arrangement" to a contract between "an individual and one or more primary care physicians . . .," but request comments on whether the definition should be expanded to include advanced practice providers such as nurse practitioners (NPs) and physician assistants (PAs). OSP would strongly encourage the department to broaden the definition of "primary care physician" to include non-physician providers.

Primary care is frequently delivered by non-physicians, who typically provide high-quality care for a lower price.¹ Given this, federal rules and regulations should not discriminate against one set of providers. The proposed regulation creates an unreasonable distinction by considering funds paid for a contract with a physician for primary care services to be reimbursable as a Section 213(d) medical expense while funds paid for an identical contract with a nurse practitioner for primary care services would not be reimbursable. Furthermore, the draft regulations seemingly fail to consider a practice consisting of a physician, a NP, and a PA within the definition of a direct primary care arrangement.

We recommend that the definition of "direct primary care arrangement" be revised to be a contract between "an individual and one or more primary care providers . . ." and that "primary care provider" be defined as "a primary care practitioner or a legal entity registered or certified to provide primary care services under applicable state law." Furthermore, we recommend that IRS and Treasury harmonize their definition of "primary care practitioner" with the definition provided in the Social Security Act. Specifically, Treasury and the IRS should utilize paragraphs (I) and (II) of Section 1833(x)(2)(A)(i) of the Social Security Act in the final regulation:

In short, if a subscription-based payment arrangement for primary care constitutes a deductible expense for medical care under Section 213(d), federal tax policy should be neutral on the type of provider so long as similar primary care is being provided.

2) All Direct Care Arrangements, Not Just Direct Primary Care, Should Qualify as a Section 213(d) Expense

In addition to expanding the type of provider permitted to engage in a direct primary care arrangement and to further equalize tax treatment between types of coverage, OSP strongly recommends that Treasury and the IRS clarify that other direct medical care arrangement contracts, such as subscription-based payment arrangements for specialty care, qualify as a 213(d) medical expense.

Several states have seen the value of such a policy change as well. Tennessee was the most recent state that "updated" their direct primary care law during their 2020 legislative session by allowing any type of direct care arrangement and exempting them from being regulated like insurance. These changes have multiple advantages. Patients benefit from greater time with providers and those with chronic conditions benefit with more case management and "high-touch" care all for a predictable cost. Providers benefit from a more stable business model with lower administrative costs and frustrations.

To this end, we recommend adding in Section 213 the following (v)(b):

"Direct medical care arrangements — Expenses paid for medical care under section 213(d) include amounts paid for a direct medical care arrangement.

A "direct medical care arrangement" is a contract between an individual and a direct medical care provider whereby the provider agrees to provide medical care (as defined in section 213(d)(1)(A) for a fixed annual or periodic fee without billing a third party.

A "direct medical care provider" is an individual or legal entity, licensed registered or otherwise authorized to provide medical care (as defined in section 213(d)(1)(A)). "

"Direct medical care provider" includes the licensed professionals listed in section 1861 (r)(l-5) of the Social Security Act (42 U.S.C. 1395x(r)) and nurse practitioners in independent practice."

3) Provide "Qualified DPC Arrangements" Safe Harbors

OSP appreciates that Treasury and the IRS recognize that there are many types of DPC structures and that some may be compatible with a health savings account (HSA). OSP continues to believe, however, that DPC arrangements do not constitute "coverage" within the meaning of section 223(d)(2)(B) and that the departments should permit DPC enrollees to make HSA contributions.

When a client contracts with a law firm for legal services "on retainer," the client pays a subscription fee in exchange for a bundle of services. The retainer contract does not require the subscriber to use legal services; it merely gives the client the right to do so. There is no agreement that if the subscriber uses a service, the law firm will pay for it, like an insurance company might under traditional health care insurance. There is no reasonable characterization under which a retainer contract would be considered "legal insurance."

As with all subscription-based contracts, the legal retainer example above shows that there is some uncertainty inherent in a subscription contract as the subscriber may use fewer or more legal services than expected. This is not insurance risk, however. It is contract risk and it is factored into the parties' scope of content/services and pricing. Insurance coverage is distinct because a customer pays a third party to assume the risk that if a certain costly event occurs the third party will pay the cost for that event. That arrangement does not exist in a subscription contract.

Like the law firm, the DPC provider offers a bundle of services. Like the subscribers in the example, the DPC subscriber purchases the right to use health care services. There is no agreement that if the patient uses a service, the DPC provider will pay for it like an insurance company might under traditional health care insurance. The DPC provider and the patient factor contractual risk into the scope of services and pricing.

Specifically, Section 223(c)(l)(A)(ii)(ll) provides that an individual is not eligible to contribute to an HSA if they have a non-high-deductible health plan that "provides coverage for any benefit which is covered under the high deductible health plan." According to Black's Law Dictionary, "coverage" is the "[¡]nclusion of risk under an insurance policy; the risks within the scope of an insurance policy." That is, "coverage" requires the transfer of risk through an insurance plan. As discussed in the previous section, a DPC arrangement does not contain a transfer of risk and therefore is not insurance. By definition, the individual contracts directly with the provider for medical services. Because there is no transfer of risk, DPCs do not provide "coverage" within the meaning of Section 223(c)(l)(A)(ii)(ll). Because DPCs do not provide "coverage," they do not make an individual ineligible to contribute to an HSA.

To the extent that the departments do not adopt OSP's analysis regarding "insurance" and "coverage" discussed above, OSP recommends providing additional guidance on the certain DPC structures that would permit individuals to make HSA contributions (hereafter, "qualified DPC arrangements"). We ask that the final rule specify that if the DPC arrangement provides "disregarded coverage" under Section 223(c)(1)(B), including the chronic disease medical services and items identified in Notice 2019-45 and then charges the individual separately for non-preventive treatment, laboratory testing, or medications, the individual would be able to contribute to an HSA. For example, "'qualified DPC arrangement' means a DPC arrangement that limits the care provided under the arrangement to disregarded coverage within the meaning of section 223(c)(l )(B) and guidance issued thereunder."

The departments could authorize another category of qualified DPC arrangements that is not based on the provision of disregarded coverage, but rather limits the number of patient visits available (thus limiting the contractual risk to the provider). For example, "'qualified DPC arrangement' means a DPC arrangement that limits non-preventive visits to five (5) visits per patient per month."

Under any definition of "qualified DPC arrangement," the provider would be permitted to provide additional services, but those would be charged to the patient or plan outside of the DPC arrangement.

OSP also recommends that the departments provide for a de minimis safe harbor where if there is urgent care provided by the DPC, but it is under a certain percentage of the total care available through the membership, it does not disqualify the individual from contributing to the HSA. This enables DPC providers to provide some basic urgent care to their patients (care that has historically been provided by primary care physicians in their offices, e.g., treatment of cuts, minor infections, etc.) without shipping them off to an urgent care center, and without charging them extra fees. For example, the regulations could provide: "A DPC arrangement that is otherwise a 'qualified DPC arrangement' does not become disqualified based solely on the provision of an episode of urgent care service provided under the arrangement over the course of a calendar year."

4) Allow Employer-Paid DPC Arrangements

OSP strongly opposes the departments' broad rejection of an employer-paid DPC arrangement based on the arrangement's status as a group health plan. Although we do not dispute that an employer-paid DPC arrangement is a group health plan, that is not the end of the analysis. Health reimbursement arrangements (HRAs) are employer-paid group health plans, for example, and yet participation in an HRA does not by itself disqualify an employee from contributing to an HSA. Rather, the HRA may be tailored to work with an HSA by making it a limited purpose or post-deductible HRA. See Rev. Rul. 2004-45 and Notice 2008-59. Similarly, we believe that employer-paid DPC arrangements should not preclude people from making HSA contributions if the arrangements are limited to services such as preventive care. Also, in light of the departments' request for comments regarding direct care other than primary care, an outright rejection of an employer-paid direct care arrangement (such as dental care) would seem to be a contradiction and unnecessarily limiting. Accordingly, we ask the departments to reconsider its unreasonably broad interpretation and issue guidance similar to that referenced above, laying the ground rules for making employer-paid DPC arrangements compatible with HSAs.

5) Health Sharing Arrangements Should Include Non-Ministry Arrangements

We find the definition of health care sharing ministry (and the title "Ministry") deeply concerning from both market and constitutional perspectives. Specifically, in the last 20 years, the health care market has significantly changed; where once the health care sharing ministry constituted a religiously-based exception from the usual health insurance offerings, now the market includes secular health sharing arrangements that, although equivalent to their religious counterparts, are not ministries.

Specifically, the final regulations should strike the fourth part of the definition of a health care sharing ministry, requiring the arrangement to have been "in existence at all times since December 31, 1999." The duration that an entity has been in existence should be irrelevant for determining tax treatment. Favoring long-standing incumbents harms market innovation at a time when innovation and coverage options are needed more than ever.

Moreover, although we acknowledge the definition's allowance for ethically based sharing arrangements, we believe that that allowance is moot and ineffectual because seemingly all the health care sharing ministries in existence in 1999 were religious organizations. Thus, the proposed regulations inadvertently perpetuate a favoritism shown for religious organizations over their secular equivalents. We are deeply concerned that this favoritism violates the Establishment Clause of the U.S. Constitution.

This is not just a theoretical violation, but one that has a profound practical impact on U.S. citizens. Millions of individuals who would not — based on their own ethical or religious beliefs — participate in a ministry, would suffer a tax disadvantage when they participate in a secular sharing arrangement. We object to favorable tax treatment being given to a religious group but not to their secular equivalent.

Accordingly, OSP encourages the departments to expand the definition of health care sharing ministries to include secular health sharing arrangements. Recognizing that health care sharing ministry is already defined in the Code, we propose that the benefits contemplated in the current proposed regulations be called health care sharing arrangements to encompass those arrangements that are identical to health care sharing ministries in all other aspects except that they are not affiliated with a particular religion. As discussed above, OSP also recommends that the restriction on when the arrangement was established be lifted.

OSP believes that, with one change, the other requirements stated in the proposed regulations' definition are sufficient to prevent abuse.

Specifically, OSP recommends that the IRS require a certification from the auditor of the arrangement to be filed along with the annual filing required to maintain the Arrangement's tax-exempt status.

6) Qualified Health Care Sharing Arrangements

OSP supports the Treasury Department and the IRS for permitting HRAs to reimburse fees paid for memberships in health care sharing ministries. This is appropriate and reasonable. OSP recommends, however, that as with DPC arrangements, health care sharing arrangements may be structured to permit an individual to contribute to an HSA. Participation in a sharing arrangement should not disqualify an individual from contributing to an HSA if it does not provide first dollar reimbursement for non-preventive expenses and does not reimburse medical expenses before the member meets an initial out-of-pocket responsibility equal to or greater than the HSA minimum deductible. For example. Treasury and the IRS could define a "qualified health care sharing arrangement' means a health care sharing arrangement that requires of its members an initial out-of-pocket responsibility equal to or greater than the health savings account minimum deductible as provided in applicable IRS guidance."

7) Final Regulations Should be Finalized Quickly

As a final note, we encourage the departments to issue the final regulations as soon as possible, but no later than November 1, 2020 to enable plans to incorporate these features into their 2021 offerings. We believe this is necessary to give employers adequate time to review their options and make desired changes to their benefit strategies before their plans renew at the beginning of 2022, and will give administrators enough time to update their IT and other infrastructure to be prepared for the regulations' implementation.