by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
Direct Primary Care (DPC) is the epitome of value-based medicine. In exchange for a monthly cash payment, patients have 24/7 access to their medical provider and a defined package of medical services.
The DPC movement may be small in number, but it’s a growing force that is gaining popularity here in North Carolina. To date, there are over 20 practices in over 13 locations across the state:
Fortunately, North Carolina is a friendly environment for direct care to flourish. Providers don’t have to practice under the thumb of government, as is the case with other states. No government price controls, no defined menu of services, no limit on patient panels. How refreshing.
There are federal obstacles, however, that are holding back DPC growth. While direct care settings do not participate with third party insurance carriers, it is recommended that patients purchase a high-deductible health plan for emergency medical situations beyond primary care (and required under Obamacare’s individual mandate). As more Americans are purchasing high deductible health plans, more are also pairing Health Savings Accounts (HSAs) with them. According to America’s Health Insurance Plans (AHIP), 20 million policyholders now use HSAs. With an HSA, you can contribute and withdraw funds on a tax-free basis, so long as the money is used for “qualified medical expenses” as determined by the IRS.
Circling back to direct primary care, monthly payments are currently not considered to be a qualified health expense as interpreted by the IRS. As a result, HSA holders can not pay for monthly DPC payments with HSA funds. To fix this, legislation has been introduced to amend the tax code such that direct care payments are qualified medical expenses, and that direct care is in no way a risk-bearing entity (under the misperception that monthly membership payments are treated as health insurance premiums, which cannot be paid for through one’s HSA).
If and when these tweaks are made to the tax code, it is likely that there will be more demand from patients to seek care through this business model. You can read more about the legislation here and here.