Some State Insurance Laws Conflict with Federal HSA Requirements

The contribution rules for health savings accounts (HSAs) strictly limit the types of health plan coverage that eligible individuals may have. To be eligible for HSA contributions, an individual generally cannot have health coverage other than high deductible health plan (HDHP) coverage. A health plan that provides coverage below the HDHP minimum annual deductible will generally disqualify an individual from HSA eligibility.

However, some states have enacted laws requiring health insurers to count third-party payments for prescription drugs—such as discounts, vouchers, financial assistance, or other out-of-pocket payments—toward enrollee out-of-pocket expenses before the deductible has been reached. Under existing federal requirements, insurers complying with these state laws will generally make certain enrollees ineligible for HSA contributions. If an enrollee does not meet the requirements for HSA eligibility, any HSA contributions made during this period of ineligibility may create a serious tax event for the enrollee.

Fully insured health plans generally must comply with both state and federal law, including state insurance laws regarding expenses that must be applied toward the plan’s deductible. Issuers in states that have laws that conflict with federal HSA eligibility requirements should be proactive in addressing the issue with affected enrollees. As a best practice, issuers should contact affected enrollees to clearly explain how applying funds from third parties toward the plan’s deductible impacts HSA eligibility.

Following is an overview of the state laws that conflict with federal HSA requirements.

• Arizona. Effective Jan. 1, 2020, Arizona HB 2166 requires insurers and pharmacy benefits managers (PBMs) to apply any discount or coupon used by a participant toward their out-of-pocket expenses unless the drug has a generic equivalent or the participant has an exception from using the generic drug. There is no exemption for HDHPs.
• Arkansas. Effective Jan. 1, 2022, Arkansas HB 1569 requires insurers to apply any coupon or discount used by a participant toward their cost-sharing requirement, except for brand name drugs with a medically appropriate generic alternative. There is no exemption for HDHPs.
• North Carolina. Effective Oct. 1, 2021, North Carolina SB 257 requires third-party payments to be included toward an insured’s out-of-pocket maximum, deductible, copayment, coinsurance or other applicable cost-sharing requirement unless the drug has a generic equivalent or the insured received an exception or prior authorization. There is no exemption for HDHPs.
• Tennessee. Effective July 1, 2021, Tennessee HB 0619 requires insurance companies to include third-party payments when calculating an enrollee’s cost-sharing requirement. This requirement includes all medical and pharmacy benefits, not just prescription drugs. There is no exemption for HDHPs.

Eleven other states have similar laws, but include exemptions for HDHPs to preserve HSA eligibility for HSA contributions:

Connecticut (Public Acts No. 21-14 and 22-146)

Delaware (SB 267)—effective Jan. 1, 2024

Georgia (HB 946)

Illinois (215 ILCS 134/30(d) and Public Act 102-0704)

Kentucky (SB 45 and Insurance Bulletin 2021-002)

Louisiana (SB 94)

Maine (LD 1783)—effective Jan. 1, 2023

New York (AB 1741)—effective Jan. 1, 2023

Oklahoma (HB 2678 and HB 3495)

Virginia (HB 2515 and HB 1081)

West Virginia (HB 2770 and SB 594)—exemption for HDHPs was effective March 3, 2023.

Reach out to your Hylant representative for further information. Don’t have one? Contact us here.

The above information does not constitute advice. Always contact your employee benefits broker or trusted advisor for insurance-related questions.