New HDHP Insulin Safe Harbor Under Inflation Reduction Act of 2022

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA) (P.L. 117-169), a budget reconciliation act focused on tax reform, climate change, and healthcare costs. One notable provision of the IRA for employers is the expansion of coverage of insulin under high deductible health plans (HDHPs). Effective for plan years beginning on or after December 31, 2022, HDHPs will be permitted to cover insulin for a broader range of uses than before, prior to satisfaction of the deductible, without adversely affecting a participant’s eligibility to contribute to a health savings account (HSA).

Background

To be eligible to contribute to an HSA, an individual must be covered by an HDHP. In order to qualify as an HDHP, a health plan generally cannot provide any coverage prior to satisfaction of the plan’s deductible. There is, however, a limited exception, or safe harbor, for coverage of certain preventive care. In IRS Notice 2019-45, the IRS described preventive care for chronic health conditions that can be covered prior to the HDHP deductible without adversely affecting HSA eligibility—including insulin for individuals diagnosed with diabetes.

Expanded Insulin Coverage Prior to HDHP Deductible

The IRA codifies the prior guidance and expands its coverage as part of Section 223(c) of the Internal Revenue Code of 1986, as amended, by allowing an HDHP to cover “selected insulin products” prior to the deductible, without regard to whether the individual has been diagnosed with diabetes. Section 223(c) defines “selected insulin products” as any dosage form (including vial, pump, or inhaler) of any type of insulin (rapid-acting, short-acting, intermediate-acting, long-acting, ultra long-acting, and premixed).

This new safe harbor for coverage of insulin by an HDHP applies to plan years beginning on or after December 31, 2022 (i.e., January 1, 2023, for plans with a plan year that is the calendar year).