It all started with good intentions. On May 10, 2016, Maryland approved the Contraceptive Equity Act. One purpose of the act is to require Maryland’s health insurers to cover vasectomies without charging deductibles, effective January 1, 2018. Sounds unobjectionable enough, right?

Here’s the problem: requiring free vasectomies conflicts with the federal tax requirements of a health savings account (HSA). An HSA (offered in tandem with a high deductible health plan) must have minimum deductibles for coverage, other than preventive care. And there’s a list of what counts as preventive care. Guess what’s not on the list?

In other words, covering vasectomies without a deductible could disqualify an HSA from preferential treatment under the federal tax code. This is only a problem for fully insured plans. Self-funded plans are not required to cover vasectomies without deductibles and can, therefore, continue applying deductibles in order to satisfy federal requirements.

So what’s the fix? In May 2017, the Maryland Insurance Administration asked the IRS to consider vasectomies as preventive care. If the IRS agrees, the problem goes away. Alas, the IRS has not responded.

There is also a potential legislative fix. Maryland’s general assembly could, among other things, repeal the requirement to cover vasectomies without deductibles. But if the legislative fix is not retroactive to January 1, 2018, some or all contributions to HSAs might be subject to penalties.

Maryland’s insurers, bankers, and accountants have raised this issue with legislators, so some kind of fix is expected soon. Until then, consider delaying contributions to fully insured HSAs in Maryland.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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