By Greta E. Cowart and Jed Morrison

Historically, employers seeking to incentivize employees to seek health care and preventive care from primary care physicians instead of specialists did so through copays or other health plan financial incentives if the health plan was intended to qualify as a high deductible health plan (“HDHP”) so the employees could make tax-deductible Health Savings Account (“HSA”) contributions, and the HDHP was the employee’s only health plan coverage. Prior to the enactment of the One Big Beautiful Bill Act (“OBBBA”), Direct Primary Care Service Arrangements (a “DPCSA”) were treated as group health plan coverage, and adding that coverage to HDHP coverage disqualified the employees from making tax-deductible contributions to their HSAs. The OBBBA passed last summer now permits employers providing HDHPs to provide DPCSA coverage to their employees to encourage the use of primary care services without disqualifying their employees from making tax-deductible contributions to their HSAs.

An employee may find enrolling in an HDHP with DPCSA coverage more appealing because it includes primary care visits at no cost. This makes routine care for issues such as the flu, colds, and other common illnesses easier to access, beyond the preventive care already covered under the HDHP, and without requiring deductible payments or other out-of-pocket costs. For the employer, it is an incentive for employees to address common maladies quickly and potentially without unnecessary and more expensive visits to specialists.

A DPCSA is an arrangement under which a member is provided medical care that consists solely of primary care services provided by primary care practitioners, if the only compensation for such primary care services is a fixed-period fee, and the care does not include procedures that require the use of general anesthesia, prescription drugs (other than vaccines), or laboratory services not typically administered in an ambulatory primary care setting.

Further, a DPCSA is a direct contractual arrangement with a primary care practitioner, which includes “a physician who has a primary specialty designation of family medicine, internal medicine, geriatric medicine, or pediatric medicine; or (II) is a nurse practitioner, clinical nurse specialist, or physician assistant… for whom primary care services accounted for at least 60 percent of [their practice].”

For the arrangement to qualify as a DPCSA, the monthly fee per individual cannot exceed $150 (to be adjusted for inflation) or $300 for any arrangement covering more than one individual (e.g., family coverage or employee plus children). The flat fee per month covers primary care services and services that are approved telehealth services on the list published annually for Medicare telehealth services (under section 1834(m)(4)(F) of the Social Security Act). The term “telehealth service” means professional consultations, office visits, and office psychiatry services (identified as of July 1, 2000, by HCPCS codes 99241–99275, 99201–99215, 90804–90809, and 90862 (and as subsequently modified by the Secretary of Health and Human Services)), and any additional service specified by the Secretary. The DPCSA can cover primary care services (as defined in Internal Revenue Code section 223(c)(1)(E)) and telehealth services for services subject to the deductible under the group health plan.

The flat monthly fee per person or per family must cover the primary health care services provided by primary care providers. The DPCSA can offer certain healthcare items or services outside of the DPCSA flat fee to individuals regardless of their status as members of the DPCSA so  long as the DPCSA bills for those items and services separately to members and nonmembers.

While the new subsection in the Internal Revenue Code clarifies that for the purposes of the HSA contribution being deductible, the DPCSA is not treated as a group health plan coverage, such services must be limited to primary care services, and it cannot offer services that are not primary care services, services that involve the use of a general anesthetic, or prescription drugs as a general rule. However, there is an exception to this rule: a DPCSA can still qualify even if it offers some limited prescription drugs or other limited services or items outside the arrangement, as long as those prescription drugs or other services or items are sold separately to both members and non-members on the same terms, and the arrangement otherwise meets the rules and does not include non-primary care or other disqualifying services. In that case, covered employees should still be able to make tax-deductible HSA contributions.

While a DPCSA is not a health plan for purposes of the HSA contribution deductibility, the amendments in the OBBBA did not change the definition of what constitutes a health plan in  COBRA or other statutory provisions which rely on a different definition of a group health plan. As a result, for those purposes, the DPCSA still meets the definition of a group health plan and could be subject to the continuation coverage and other health plan requirements, absent any additional guidance. Unless there is additional guidance, employer should consider revising COBRA continuation coverage notices to incorporate the DPCSA. Employers should review whether the DPCSA alone or in combination with the HDHP meets all of the other requirements applicable to group health plans and review whether its documents are clear regarding what components are included in the “health plan” with the DPCSA so that the combined services comply with all of the applicable group health plan requirements under the Code and ERISA.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For assistance, please contact an attorney in Jackson Walker’s Healthcare & Life Sciences or Employee Benefits & Executive Compensation practice.