Over-the-Counter COVID Tests – Are they a good use of your FSA, HRA, or HSA dollars?
COVID-19 Expenses Eligible for FSA, HRA, and HSA Payment or Reimbursement
As you may recall, in March of 2021, the IRS issued an announcement notifying taxpayers that amounts paid for personal protective equipment (such as masks, hand sanitizer and sanitizing wipes), for the primary purpose of preventing the spread of the virus causing COVID-19, will be treated as amounts paid for medical care. Therefore, such amounts are eligible to be paid or reimbursed under a participant’s health FSA, HRA, or HSA.
Later, in September of 2021, the IRS issued a follow-up announcement confirming that the cost of home testing for COVID-19 is an eligible medical expense, because it is a cost that relates to the diagnosis of a disease. As such, the amount paid for a COVID-19 home testing kit is eligible to be paid or reimbursed under a participant’s health FSA, HRA, or HSA.
COVID-19 Expenses Eligible for Group Health Plan Payment or Reimbursement
Last month, the Department of Labor, the Internal Revenue Service, and the Department of Health and Human Services (the “Agencies”) issued new pandemic-related guidance addressing over-the-counter (“OTC”) COVID-19 tests.
Prior to the recent guidance, the Agencies had required group health plans and health insurance companies offering group or individual insurance coverage to pay or reimburse participants for the cost of diagnostic COVID-19 tests (including at-home diagnostic tests), without cost-sharing, prior authorization, or other medical management requirements. However, such coverage was limited to circumstances in which the test was ordered by an attending health care provider who determined that the test was medically appropriate for the particular participant.
In January, the Agencies responded to the FDA’s subsequent approval of additional COVID-19 diagnostic tests (including OTC tests that can be self-administered and self-read at home without the involvement of a health care provider) by providing that individuals who purchase OTC COVID-19 tests during the COVID-19 public health emergency may seek payment or reimbursement from their group health plans or health insurance companies. Thus, effective January 15, 2022, group health plans and health insurance companies offering group or individual insurance coverage are required to cover OTC COVID-19 tests, including tests obtained without the involvement of a health care provider.
Although group health plans and health insurance companies offering group or individual insurance coverage must now cover OTC COVID-19 tests, a plan or insurance company may, under certain circumstances, limit: (a) the number of tests it will fully cover (without cost-sharing) during a calendar month (or during a 30-day period); and/or (b) the reimbursement amount payable for any tests purchased from a non-preferred seller. Participants should refer to the terms of their particular plans or policies for more information regarding any such limitations.
Impact of Health Plan Coverage on FSA, HRA, and HSA Claims
Now that OTC COVID-19 tests are required to be covered by group health plans and health insurance companies offering group or individual insurance coverage, participants should submit their expenses for such tests to their health plans and insurance companies, rather than their FSAs, HRAs, and HSAs, for payment or reimbursement. Doing so will help participants preserve their FSA, HRA, or HSA dollars for medical expenses that are not covered under their health plans or health insurance policies and provide participants with more bang for their buck.
If a health plan or health insurance policy imposes any permissible limitations (on the number of tests covered or on the reimbursement amount payable), participants covered under the plan or policy may wish to submit the non-covered (or unreimbursed) portion of their test expenses to their FSAs, HRAs, or HSAs. However, it is important to keep in mind that “double dipping” is prohibited – a participant may not submit a claim for OTC COVID-19 tests to the participant’s health plan or insurance company and then seek payment or reimbursement for those same expenses from an FSA, HRA, or HSA.
The information included in this post is for explanation only and is not intended as tax or legal advice. In all matters where tax or legal advice is needed, the services of professional counsel should be sought.