The Louisiana Department of Insurance advised health insurance insurers and health maintenance organizations on Feb. 14 to notify insureds enrolled in high-deductible health plans (HDHPs) with a health savings account (HSA) that they may face unintended tax consequences from the use of certain third-party payments, such as pharmacy discount cards. The potential for these "serious tax event[s]" comes as a result of the recently enacted Louisiana insurance statute La. R.S. 22:976.1 and its interplay with both the federal tax code and IRS rules.
La. R.S. 22:976.1 mandates that the value of third-party payments, such as discounts, vouchers, financial assistance, pharmacy discount cards, or other out-of-pocket reduction payments used to purchase prescription drugs be applied toward satisfaction of an insured's annual deductible. According to IRS rules, HDHPs are not allowed to provide benefits for any year until the insured's minimum deductible for that year is met. However, applying the value of third-party payments deemed ineligible toward satisfaction of an individual's HDHP annual deductible could render that individual ineligible to contribute to an HSA for that tax year. So for those with an HSA, if third-party payments like prescription drug discount coupons are applied before their HDHP annual deductible is met, the tax benefits provided by the HSA could be lost, which could very well "potentially create a serious tax event for the individual."
In order to avoid this potential pitfall, the Louisiana Department of Insurance advised consumers enrolled in HDHPs with HSAs to avoid using third-party payments, including pharmacy discount cards. Likewise, the Department of Insurance advised employers that offer state-regulated HDHPs to their employees and health insurance issuers carrying HDHP products to notify insureds enrolled in HDHPs with HSAs of these tax risks.
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