Revisiting the tax treatment of direct care

Revisiting the tax treatment of direct care

The discussion around taxes and direct primary care (DPC) practices primarily focuses on the Health Savings Account (HSA) and the Affordable Care Act (ACA). Given the structure of the DPC, it is not considered insurance, even though it does qualify for meeting the ACA individual mandate. Many DPC patients also opt to carry high-deductible insurance for catastrophic and major medical events not covered by their DPC membership fee.

To date, patients cannot use HSA funds to pay their DPC membership fees and, in fact, cannot join a DPC if they have an HSA. A bill that has passed in the House and is pending in the Senate may change the tax implications for a DPC. HR 6199, the Restoring Access to Medication and Modernizing Health Savings Accounts Act of 2018, would enable “millions of Americans with HSAs to have great access to affordable primary care from a DPC doctor of their choice. While not perfect this will allow almost all DPC practices to see patients with HSAs and allow their fees to be paid from the HSA.”

As to the use of Flexible Spending Accounts (FSA), given certain conditions patients may be able to use those funds with a DPC membership. The DPC must be “structured properly” to qualify. As Dr. Phil Eskew, licensed physician and attorney, states, “the practice would want to bill in arrears, focus on preventive nature, consider itemized statement of preventive services, etc.”

DPCs are eligible as employer plans, that is, the healthcare coverage provided for employees by a business. Even though the Internal Revenue Service (IRS) once determined that DPCs do not qualify to “satisfy market reforms,” and employers of a certain size would be subject to fines, with the passage of “H.R. 34: 21st Century Cures Act the potential for a $100 per day fine for the less than fifty employers desiring to pay for DPC services with pretax dollars has largely been eliminated.”