Comments on Proposed Rule on Health Reimbursement Arrangements and Other Account-Based Group Health Plans (REG-136724-17)


December 28, 2018

Dear Commissioner Rettig,

Thank you for this opportunity to comment on the proposed rule, REG-136724-17, intended to expand options for how employees can utilize Health Reimbursement Arrangement funds.

The Association of American Physicians & Surgeons (“AAPS”) is a non-profit membership organization of physicians and surgeons who are mostly in small, independent practices.  Founded in 1943 (and celebrating our 75th year), AAPS defends and promotes the practice of private, ethical medicine.  AAPS has members in virtually every specialty and State, and AAPS speaks out frequently about issues concerning patients and medical practice

Giving consumers more options is greatly needed and the additional tools for this purpose outlined in the proposal are good steps in the right direction.

More is needed and AAPS would like to offer the following comments and suggestions for improvement of the proposal:

Physician-Patient Fixed-Fee Periodic Agreements are Medical Care defined by I.R.C. 213(d)

The proposal left unanswered important questions about the use of Health Reimbursement Arrangements for Direct Primary Care and similar fixed periodic-fee agreements between patients and physicians. We request the IRS address this before issuing the final new regulations. The IRS should clarify that patients can use HRA funds for medical care provided through a periodic fixed-fee agreement with their physician. Increasingly popular Direct Primary Care (DPC) practices are one example of this type of arrangement, where patients directly contract for care with their doctor.

When periodic fixed-fee arrangements between a patient and doctor are “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,” they meet the definition of medical care defined in 213(d) of IRS Code. It is time for the IRS to clearly state this so that patients can use not only HRA funds for DPC and similar arrangements, but use their own Health Savings Account (HSA) dollars for these medical expenses as well.

While clarifying that patients paying physicians directly for medical care through a periodic fee agreement is a qualified medical expense defined by 213(d), the IRS also needs to state that such direct patient-physician relationships are neither a “plan” nor “coverage.”  Twenty-five states already recognize that DPC arrangements are not a type of insurance, and it is time for the IRS to align to this policy as well. Failing to do so will likely continue to block consumer use of HRAs for DPC as well as perpetuate the inability of HSA account holders to either use their HSA funds for DPC or contribute to their HSA while paying for care through a DPC arrangement.

In the recent “Reforming America’s Healthcare System Through Choice and Competition” report, resulting from Executive Order 13813, the administration recognizes that middlemen in between patients and their physicians, “has contributed to a system that produces high costs with uneven quality.” To help reconnect patients more directly with those caring for them, the report urges federal agencies to, “administratively expand consumers’ abilities to benefit from HSAs” and HRAs.  In addition, the report specifically recommends, “enabling consumers with HSAs to enter into provider-consumer fixed-fee arrangements, including direct primary-care arrangements.”

We urge the IRS, and other agencies involved in finalizing the proposed rule, to prioritize the above needed corrections to the HRA proposal, in order to comply with the Administration’s directives and confer greater benefit on patients.

Maximal Flexibility for Employee Use of HRAs for Alternative Coverage like STLDI, AHPs, and Healthcare Sharing Plans.

We would also like to take this opportunity to address another aspect of the proposal. The Departments request comments “on whether HSA integration with Short Term Limited Duration Insurance (STLDI) should be permitted, including whether integration should be permitted with any other type of coverage,” besides ACA qualified plans on the individual market.

AAPS urges the Departments to extend maximal flexibility to employees using HRA funds for medical care or alternative types of coverage.  A self-stated goal of the rule is “to provide more Americans with additional options to obtain quality, affordable healthcare.”

Currently, the options available on ACA exchanges are more often than not, high-cost and greatly restrict patient options for where they get their care. HHS reported in May of last year, “average health insurance premiums doubled since 2013.” Meanwhile, “nearly three-quarters, or 72% of health plans in the ACA’s exchange market have narrow networks,” according to an Avalere report on 2019 plan offerings reported in Forbes.

Short Term Limited Duration Insurance (STLDI) plans are options that can provide millions of Americans relief from soaring insurance premiums and limited choice. “Exempt from ACA’s hidden taxes, mandates and regulations, these plans often cost 70% less and offer a broader choice of health-care providers,” writes Michael F. Cannon of Cato in the Wall Street Journal.  The current proposal would allow Excepted Benefit HRA funds to be used for this purpose. We also urge that use of individual-integrated HRAs for STLDI plans should be granted. Allowing this would not only offer savings and choice to employees who desperately seek options, but would also reduce costs to taxpayers by avoiding increased tax exempt spending on higher-cost ACA-qualified plans.

In the same way, lower-cost, higher-quality options like Association Health Plans (AHPs) and health care sharing arrangements should also be qualified for use with integrated HRAs.

Other flexibility that should be considered is allowing employers the ability to offer employees a choice of a group plan or an individual-integrated HRA. Allowing one or the other to be offered to employees, but not allowing a choice between the two options, seems antithetical to the goal of increasing options for individuals.

Excepted Benefit HRAs

Finally, a few points related to the proposed Excepted-Benefit HRAs.

The rule explains that the Excepted Benefit HRA is being proposed, in part, because “some employers may wish to offer an HRA without regard to whether its employees have other coverage at all.” The rule then limits employer funding in this situation to $1800 per employee.  AAPS suggests that this dollar limit is arbitrary and improper. 

Tying the provision of medical care to approved “coverage” drives costs higher and too often impedes patients from meaningfully choosing where, when, and from whom they receive their care. Employers should be encouraged, rather than be handcuffed with an arbitrary cap, when helping their employees bypass the insurance-plan middlemen and pay directly for care.  We would suggest lifting the cap on Excepted-Benefit HRAs.


Issuing the above clarifications related to HRAs, HSAs, and direct payment are crucial steps the IRS can take to help further the Administration’s goals outlined in the report as directed by the Executive Order. Thank you for considering these changes and working to implement them as soon as possible for the benefit of patients and those who care for them.

Respectfully Submitted,

Jane M. Orient, M.D.

Executive Director

Association of American Physicians and Surgeons

520-323-3110 | [email protected]