Proposed Regulations for Medical Care Arrangements & 213(d) Expenses

On June 8, 2020, the Internal Revenue Service (IRS) proposed regulations addressing proposed regulations on the treatment of amounts paid for two medical arrangements:  Direct Primary Care (DPCs) Arrangements and Health Care Sharing Ministries (HCSMs).  Currently, HCSM membership fees and DPC payments are not for medical care under Section 213(d), but through the new proposed regulation, in response to Executive Order 13877, would allow the membership fees and payments for direct primary care to be treated as an eligible medical expense.

This proposed regulation would treat the HCSM membership fees and DPC payments as expenses related to certain types of arrangements as eligible medical expenses under Section 213(d) of the code through an employer’s Health Reimbursement Arrangement (HRA).  The employee would be reimbursed for HCSM membership fees and DPC payments through the employer sponsored HRA.

Code Section 213 allows individuals to deduct medical care which includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

Health Care Sharing Ministries are formed by members of religious groups that share health care costs without having to meet the requirements of the Affordable Care Act (ACA) for covering a comprehensive set of benefits.  These individuals share their medical bills through the ministry and receive payments from other members to help with medical bills.

Direct Primary Care Arrangements are contracts between an individual and one (or more) primary care physicians under which the physicians agree to provide medical care for a fixed annual or periodic fee without billing a third party.

This regulation will enhance employers’ and employees’ ability to use the HRA to pay for medical services without purchasing traditional group health insurance.

The proposed regulations would apply for tax years beginning on or after the date they are published in final form.  Currently the IRS is accepting comments, so the final regulations are expected after August 10, 2020.  Stay tuned as BASE® will keep you updated when additional information becomes available!