General rules for contributions to 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—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 is deemed ineligible for HSA contributions, payments made from an HSA may create a serious tax event for the enrollee.

This Compliance Bulletin provides an overview of the state laws that potentially conflict with federal HSA requirements.

Action Steps

 Health plans sold in these states generally must comply with both state and federal law. In many cases, insurance departments of states that have conflicting laws have addressed the conflict in sub-regulatory guidance. Some are actively engaging with their state legislature to attempt to enact new legislation to eliminate the conflict. However, issuers in these states should be proactive in addressing the issue with affected enrollees.

As a best practice, issuers should promptly contact affected members to clearly communicate the effects of applying funds from third parties and their HSA when making payments for prescriptions.

*Effective Jan. 1, 2022, Connecticut Public Act No. 21-14 requires individual and group health insurance policies to give participants credit toward their coinsurance, copayment, deductible or other out-of-pocket expenses when they use a drug discount. However, enacted on May 7, 2022, Connecticut Public Act No. 22-146 corrects the conflict with respect to HDHPs, providing that the requirement applies to HDHPs only to the extent permitted by federal law.

*Effective in 2020, Georgia HB 946 requires PBMs to include any third-party payments, discounts or product vouchers for prescription drugs when calculating an individual’s out-of-pocket maximum, deductible or copayment responsibility, unless the drug has a generic equivalent or the individual obtained prior authorization. However, the law states that if any provision is inconsistent or conflicts with federal law, the federal law will apply.

*The Illinois Managed Care Reform and Patient Rights Act (215 ILCS 134/30(d)) requires health plans to apply third-party payments, financial assistance, discounts, product vouchers or any other reduction in out-of-pocket expenses for prescription drugs toward a covered individual’s deductible, copay, cost-sharing responsibility or out-of-pocket maximum (OOPM). Federal agencies confirmed to the Illinois Department of Insurance (IDOI) that these discounts would make an individual ineligible for HSA contributions unless the discount was for preventive care (such as insulin) or applied toward cost-sharing after the minimum deductible had been met. However, effective April 22, 2022, Illinois Public Act 102-0704 provides that if the requirement would result in HSA ineligibility under federal law, it applies to HDHPs only after the minimum deductible is satisfied (except with respect to preventive care).

*Effective Jan. 1, 2022, Kentucky SB 45 prohibits health plans and PBMs from excluding cost-sharing amounts covered by coupons, discounts or vouchers when calculating a participant’s total cost sharing. However, the Kentucky Department of Insurance stated that the requirement only applies to the extent permitted by federal law, and do not apply to HDHPs when paired with an HSA.

*Effective June 21, 2021, Louisiana SB 94 requires issuers to include any third-party payments in a participant’s cost sharing. However, the law provides that it should be applied only to the extent permissible under applicable law.

*Effective Jan. 1, 2023, Maine LD 1783 requires issuers and PBMs to credit any waiver, discount or third-party payment toward a covered person’s cost-sharing or other out-of-pocket expenses unless the drug has a generic equivalent or the participant has an exception from using the generic drug. However, this law provides that if the requirement would result in HSA ineligibility under federal law, it applies to HDHPs only after the minimum deductible is satisfied (except with respect to preventive care).

*Effective Nov. 1, 2021, Oklahoma HB 2678 requires third-party payments to be included toward an enrollee’s OOPM, deductible, copayment, coinsurance or other cost-sharing requirement. On Oct. 29, 2021, the Oklahoma Insurance Department issued a bulletin stating that all HDHPs in effect on Nov. 1, 2021, must comply with HB 2678. The Department stated that it is actively engaging with the Oklahoma state legislature to seek clarification regarding the conflict. As a result, effective May 16, 2022, Oklahoma enacted H.B. No. 3495, which provides that if the requirement would result in HSA ineligibility under federal law, it applies to HDHPs only after the minimum deductible is satisfied (except with respect to preventive care).

*Effective Jan. 1, 2020, Virginia HB 2515 requires carriers to include any third-party payments in an enrollee’s OOPM or cost-sharing requirement. However, the law states that it should only be applied “to the extent permitted by federal law and regulation.” In addition, effective April 7, 2022, Virginia enacted HB 1081 to clarify that if the requirement would result in HSA ineligibility under federal law, it applies to HDHPs only after the minimum deductible is satisfied (except with respect to preventive care).