Direct Primary Care and HSA Eligibility (Section 223)

How it works

A direct primary care arrangement, sometimes called a direct health care agreement in Florida, is a contract where a patient pays a primary care practice a flat periodic fee for a defined bundle of primary care services, and the practice bills no third party for that care. It replaces fee-for-visit billing with a subscription.

Before 2026, this created a real problem for anyone who also wanted a health savings account. The IRS's working position, never finalized into a Treasury Decision, treated a typical arrangement as coverage providing medical benefits before an HDHP's minimum deductible is satisfied, so enrolling in one generally made a person ineligible to contribute to an HSA even while carrying a genuinely qualifying HDHP.

The 2025 tax law known as OBBBA fixed this for months beginning after December 31, 2025, and it fixed two separate questions with two separate answers. Keeping the two apart is the entire discipline of this topic. Question A asks whether the arrangement costs a person their HSA eligibility. Section 223(c)(1)(E) answers that a direct primary care service arrangement, a DPCSA, meeting a precise statutory definition is not treated as a health plan for the eligible-individual test. Question B asks whether the fee can be paid tax-free once an HSA exists. Section 223(d)(2)(C)(v) answers that separately: a DPCSA is added to the list of insurance an HSA may pay for, so the fee becomes a qualified medical expense. The two rules test different things, one carries a dollar cap and one does not, and neither one reaches the self-employed health insurance deduction, a third and unrelated question. I cover OBBBA's broader small-business changes in a separate overview.

The fix reaches only what it names. It leaves the self-employed health insurance deduction in Section 162(l) alone, along with the general definition of medical care in Section 213(d); IRS Notice 2026-5, the guidance implementing this provision, addresses only Section 223. A related question, the premium tax credit under Section 36B, is not addressed either; OBBBA amended Section 36B extensively elsewhere in the same title, for reasons unrelated to direct primary care, so that silence is specific to this provision rather than evidence Section 36B was left alone generally.

What this is worth in Florida

Florida has no individual income tax, so nothing here changes at the state level; both halves of this fix run entirely on the federal return. Florida does separately classify these arrangements, under a different label and for a different reason: Fla. Stat. section 624.27 exempts a direct health care agreement from the Florida Insurance Code, which is why a Florida primary care practice can sell a membership without an insurance license. That answers a licensing question, not either federal tax question above, and the two definitions are not the same shape, a point worth returning to below.

Who this applies to

Question A tests the arrangement's own terms, not who is paying for it or how the person earns income. A sole proprietor, a partner, a more-than-2% S-corp shareholder, and a W-2 employee are all tested on exactly the same statutory definition.

• Anyone who already clears the ordinary HSA test. The DPCSA carve-out is an addition, not a replacement. The person still has to independently carry a qualifying HDHP and no other disqualifying coverage; a DPCSA does not cure a separate problem, such as a spouse's non-HDHP family plan or Medicare enrollment. The fuller HDHP and contribution-limit mechanics are in my HSA article.
• An employer that wants to pay the fee. Nothing in the eligibility carve-out conditions itself on who pays it. Reading the statute together with how Notice 2026-5 discusses an employer paying DPCSA fees directly or through a Section 125 salary reduction, the fair reading is that an employer-funded membership does not, by itself, cost the employee their HSA eligibility either. Neither source states that reversal from the pre-OBBBA position outright, so treat it as the best current reading, not a settled holding.
• An HRA, a QSEHRA, an ICHRA, or a section 105 plan. Any of these can reimburse a DPCSA fee as an ordinary medical-care expense under Section 213(d); OBBBA did not touch that analysis. The one trap sits inside the ICHRA: it requires the participant to be enrolled in individual-market health insurance each covered month, and a DPCSA, precisely because it is not a health plan, does not itself satisfy that condition. It can sit alongside an ICHRA-funded policy; it cannot substitute for one. I cover all three in my HRA, QSEHRA, and ICHRA overview.
• The self-employed and the more-than-2% S-corp owner. Question A reaches this group the same as anyone else. What stays genuinely open is narrower: whether a DPCSA fee counts as insurance for the self-employed health insurance deduction under Section 162(l), a question OBBBA did not touch and Notice 2026-5 does not address. The workaround does not depend on resolving it, since Section 223(d)(2)(C)(v) lets the fee come out of the HSA tax-free regardless, so an owner already funding the HSA has a path that never needs that deduction. The HDHP premium itself is separate and follows its ordinary route, covered for a more-than-2% S-corp shareholder in that article.

What it requires

Question A and Question B run on different tests, and satisfying one does not automatically satisfy the other.

Question A: the statutory DPCSA definition

Section 223(c)(1)(E) sets a narrow definition, and Notice 2026-5 is explicit that whether an arrangement fits it turns on the terms of the contract, not on which services a given person happens to use.

• Solely primary care, solely one fee. The arrangement has to provide medical care consisting only of primary care services from a primary care practitioner, compensated solely by a single fixed periodic fee. An arrangement that separately bills for anything beyond that fee, or that offers services beyond primary care, fails the definition entirely rather than losing qualification only for the extra piece.
• A primary care practitioner. The definition borrows a Social Security Act standard: a physician whose primary specialty designation is family medicine, internal medicine, geriatric medicine, or pediatric medicine, or a nurse practitioner, clinical nurse specialist, or physician assistant. The definition reaches further than physicians alone.
• Three carved-out services. Even inside a qualifying arrangement, general anesthesia procedures, prescription drugs other than vaccines, and lab services not typical of an ambulatory primary care setting fall outside the definition.
• A hard monthly cap. For 2026, the first year this provision applies, the aggregate fee cannot exceed $150 a month for one person, or $300 a month if the arrangement itself covers more than one person. That doubled figure turns on whether the DPCSA contract covers more than one person, not on whether the individual separately carries family HDHP coverage. The cap is inflation-adjusted for taxable years after 2026, off a 2025 base year. A fee billed for a longer period, up to a year, still qualifies as long as the aggregate paces to that monthly figure or less when annualized.

Question B: paying the fee tax-free from the HSA

Section 223(d)(2)(C)(v) runs on its own terms, looser than Question A's in two ways. There is no dollar cap on what an HSA may reimburse; a fee that exceeds the $150 or $300 monthly figure is still a qualified medical expense, even though it also means the arrangement no longer counts as a DPCSA for eligibility that month. Timing is flexible too: an HSA may treat the fee as incurred on the first of each covered month, on the first day of the coverage period, or on the date paid, so a lump annual payment can be reimbursed right away. The one hard condition is that the same dollars cannot be reimbursed twice: if an employer already paid the fee directly or through a Section 125 salary reduction, that payment is already excluded from wages and is not a separate expense of the account holder to reimburse again.

What you need to document

The arrangement's own terms decide a DPCSA characterization, so the file has to describe the contract, not just the bill.

The signed agreement itself

Showing a single flat fee, no separate billing for anything else, and a scope confined to primary care. This is the document Notice 2026-5 points to first, and it answers the definitional question if the arrangement is ever examined.

The practitioner's credential

Confirmation that the provider is a physician holding one of the four qualifying specialty designations, or a nurse practitioner, clinical nurse specialist, or physician assistant.

A running fee-versus-cap check

The monthly, or annualized, fee measured against the $150 or $300 figure, re-checked every time the practice raises its price. The cap is tested month by month, not just at enrollment.

Proof the HDHP itself is intact

Confirmation that no other disqualifying coverage exists alongside the HDHP for the same months, since the DPCSA carve-out does nothing for a second plan that was already disqualifying on its own terms.

A record of who paid, and how

Whether the individual paid personally and then sought HSA reimbursement, or the employer paid directly or through a cafeteria plan; if reimbursed from the HSA, note which timing method was used. This is the record that heads off a double reimbursement of the same fee.

Where it goes wrong

None of this is an aggressive position. The exposure is almost entirely about whether the arrangement and its paperwork match what the statute describes.

• The cap is a cliff, not a haircut. A fee one dollar over $150, or over $300 for a multi-person arrangement, does not just lose the excess; it disqualifies the entire arrangement from DPCSA treatment for that month, reverting it to ordinary coverage that blocks HSA eligibility, and any HSA contribution made for that month becomes an excess contribution. A single price increase from the practice, with nothing else changing, is enough to trigger this.
• Bundling an extra service into the membership. A DPCSA that conditions any additional item or service on paying the membership fee fails the definition entirely, even if the client never uses the extra service. A practice that separately offers and bills the same extra services to members and non-members alike, on identical terms, does not cause the same problem; the disqualifying fact is conditioning the extra service on membership, not offering other services at all.
• Treating Florida's classification as the federal answer. Fla. Stat. section 624.27 covers a direct health care agreement from any of eight license types, among them physicians, chiropractors, dentists, and psychologists, for any health care service at all. The federal DPCSA definition is narrower: primary care only, from a primary care practitioner. A Florida-compliant agreement with a specialist or a dentist is not automatically an HSA-safe DPCSA.
• Reimbursing an employer-paid fee a second time. If the employer already paid the fee, directly or through a Section 125 election, those are already tax-free dollars. Running the same fee through the HSA a second time is a double benefit, not an additional one.
• Assuming the fee counts toward the deductible. It does not. Amounts paid for the membership are not out-of-pocket costs for HDHP-covered services and do not count toward the HDHP's deductible or out-of-pocket maximum.
• Trying to deduct the fee under Section 162(l). Given the open question above, deducting the DPCSA fee itself as self-employed health insurance is not supported by current law; deduct the HDHP premium normally, and fund the DPCSA fee through the HSA instead.
• Citing the 2020 proposed regulations as settled law. REG-109755-19, proposed in June 2020, addressed direct primary care and health care sharing ministries under Section 213, and it was never finalized into a Treasury Decision. It is useful only as background on the pre-OBBBA IRS position, not as authority for anything stated here.

A situation where this comes up

The version I see most often is a self-employed client or a small S-corp owner who already carries a family HDHP and an HSA, and who joins a direct primary care membership because they want faster access to a doctor, not because anyone is chasing a tax angle. The question that actually matters is narrow: does the membership, as written and priced, meet the statutory definition, and does its fee stay under the monthly cap. If it does, nothing about the HSA changes. If a later price increase pushes the fee over the cap, the arrangement stops qualifying for that month even though nothing else about the family's coverage changed.

What usually has to change is not the arrangement but the file behind it: keeping the signed agreement, the practitioner's credential, and a running note of the fee against the cap, rather than assuming a concierge-medicine sales pitch and a qualifying DPCSA are automatically the same thing. The contract is what decides that, not the pitch.

The version that concerns me is a client who read about the change and now assumes any membership-style medical arrangement is HSA-safe by default. Some are not primary care at all, some bill separately for add-ons as a condition of membership, and some simply cost more than the cap allows. The law did real, narrow work, and the narrowness is the part that gets skipped.