Reacting to Dobbs v. Jackson: A Benefits Decision for Employers [Part 1 of 3]

Regardless of the source (e.g., owners, employees, unions, managing bodies) or the reason (e.g., equality of benefits, in favor, outrage, compassion, empathy, wrath), the Supreme Court’s decision has caused employers to ask, “what can I do?”  Many employers are looking at adding and/or expanding benefits to include abortion and abortion-related (e.g., travel/meals/lodging).  In general, an employer cannot just say it will pay for these expenses end of story.

This is the first article of three that address various legal aspects and issues of an employer’s options regarding abortion and abortion-related (e.g., travel/meals/lodging) expenses.  Next week’s article goes through a step-wise approach to determining coverage expansion options, including the application of the approach to an employer-sponsored fully insured high deductible health plan (“HDHP”) with an integrated health reimbursement arrangement (“HRA”).  The third article applies the step-wise approach to adding abortion and abortion-related services in the form of a benefit package offered through a third party.

Various Laws to Consider

Let us be clear from the outset, if an employer decides to “do something,” it is likely a benefits decision; the type of decision an employer has made many times.  All of these questions and more impact the terms and conditions of the benefit program determine the laws that must be followed, including Employee Retirement Income Security Act of 1974 (‘ERISA”), Affordable Care Act (“ACA”), and the Internal Revenue Code (the “Code”).  For an employer subject to ERISA, the benefit may trigger plan document and fiduciary responsibilities.  Because medical care is involved, the program through which the benefit is made available may be subject to the preventative care requirements under the ACA, either directly or through integration.  And if the employer’s group health plan is a HDHP designed to allow contributions to a health savings account (“HSA”), providing the benefit may prevent employees from contributing to the HSA.  Each of these areas of law are described below in more detail.

NOTE:  The bodies of law discussed here are not exhaustive, they are illustrative.  A particular employer may be subject to different and/or additional requirements under applicable state and federal law.

Because payment of abortion and abortion-related services (e.g., travel/meals/lodging incurred to obtain the abortion services) is “medical care” under Section 213(d) of the Code, an employer program providing these benefits is a “group health plan” and triggers the application of the numerous federal requirements associated with group health plans, including ERISA, ACA, and the Code.

Employee Retirement Income Security Act of 1974 (“ERISA”)

NOTE:  Being subject to ERISA has nothing to do with the tax consequences of the benefit; the benefit is the focal point.

Providing abortion services and/or abortion related services is a benefit within ERISA’s definition of welfare benefits.  Consequently, for employers subject to ERISA, ERISA compliance is a key consideration.  ERISA’s requirements include a written plan document, a summary plan description (“SPD”), annual form 5500 filing, claims and appeals provisions, and continuation (i.e., COBRA).  In other words, an employer cannot just adopt a policy to pay these expenses.  Due to other applicable laws, abortion services and abortion related services need to be provided through, or integrated with, a group health plan that already exists and presumably complies with ERISA.  If the employer sponsors a group health plan that is self-insured, providing these additional services may just be a matter of amending the self-insured group health plan to cover them and, if there is a stop-loss coverage policy protecting the employer’s general assets, determining how the stop-loss coverage applies.  For an insured group health plan, the employer’s ability to amend the insurance policy is limited.  Coverage of the additional services likely involves using another type of group medical plan (e.g., HRA, medical expense reimbursement plan (“MERP”), health flexible spending account (“health FSA”)).

Affordable Care Act (“ACA”) and Integrated HRAs

REMEMBER:  If the benefit program is not excepted from the definition of minimum essential coverage (“MEC”) under the ACA, the benefit program must comply with the ACA mandates.

In general, an employer cannot provide a benefit that covers travel/meals/lodging to all employees or all employees and members of the employee’s family.  With limited exceptions, a standalone HRA for active employees is not allowed because the HRA is subject to, but cannot comply with, the mandated requirements under the ACA.  Namely, (1) the HRA does not provide preventive care (as defined under the ACA) on a first dollar, no cost share basis, and (2) the HRA has defined dollar maximum benefits.  Because it cannot comply with the ACA mandates on its own, an HRA for active employees needs to be “integrated with” a group health plan that complies with the ACA mandated requirements.  The ability of the integrated HRA to reimburse abortion and abortion-related expenses depends in part on the type of group health plan with which the HRA is integrated.  If the group health plan provides at least sixty percent (60%) minimum value for purposes of the ACA, the integrated HRA can be a full scope HRA reimbursing expenses under Section 213(d) of the Code.  If, however, the group health plan does not provide at least sixty percent (60%) minimum value, the integrated HRA is limited to the cost-share amounts under the group health plan.  When a full scope HRA is possible, the employer has design discretion to limit reimbursable expenses and place restrictions on reimbursements.  Nothing precludes an employer from limiting reimbursable expenses to abortion and abortion-related expenses, or to creating two integrated HRAs, one which only allows reimbursement of abortion and abortion-related expenses.

Another requirement for an integrated HRA, is that an individual must be covered under a group health plan that satisfies the mandated requirements under the ACA in order to be covered under the integrated HRA.  While the “group health plan” can be a different employer’s group health plan (e.g., group health plan of spouse’s employer), most integrated HRAs are designed to work only with the employer’s group health plan.  If an employee has employee only coverage under the employer’s group health plan, only the employee’s expenses are reimbursable under the integrated HRA.  To cover members of the employee’s family, those family members must be covered under the group health plan of the employee’s employer.

Coordination with High Deductible Health Plans (“HDHPs”) & Health Savings Accounts (“HSAs”).

In general, for an individual to be eligible to make HSA contributions, the individual must be covered under a HDHP, as defined under the Code, intended to permit contributions to an HSA.  In addition, the person must not be covered under other “impermissible” coverage.  Some types of “other” coverage are specifically identified as not preventing HSA contributions, including health FSAs, MERPs, and HRAs that do not provide coverage until after the deductible has been met (e.g., “post deductible”).  If an individual is covered under other impermissible coverage and that coverage provides for the payment of medical care expenses prior to satisfaction of the deductible under the HDHP, the impermissible coverage precludes the person from making HSA contributions; even if the individual never actually receives a benefit under the other coverage.  Whether provided through the employer’s major medical coverage or an additional benefit program (e.g., integrated HRA, health FSA, MERP, benefit package) abortion services and abortion related services (e.g., travel/meals/lodging expenses to get services), need to be limited to avoid negatively impacting the individual’s ability to contribute to the HSA.  Until the individual has satisfied the deductible under the HDHP, the additional abortion and/or abortion related services should not be accessible.

Internal Revenue Code of 1986 (“Code”)

IMPORTANT:  Just because an expense is paid or payable through a group health plan (e.g., major medical, HRA, health FSA, MERP) does not necessarily mean there is no tax consequence to the recipient.

Section 213(d) of the Code identifies expenses that are not taxable to the recipient. The expense itself must be recognized as medical care under Section 213(d) of the Code.  An employer decision to pay or reimburse up to a maximum amount, say $4,000 of travel/meals/lodging expenses likely involves a benefit that is partly not taxable and partly taxable.  This is true regardless of the vehicle through which the expenses are paid or reimbursed.  For example, if the major group health plan is self-insured and the plan is amended to include travel/meals/lodging expenses, the value of those benefits in excess of the Section 213(d) limits are taxable to the recipient.  This is important from a compliance and operational issue, and also from a communication issue.

Like many Code provisions, to get the advantage of the tax favored treatment, Section 213(d) requires certain elements be present for expenses to be considered “medical care.”

Transportation.   Section 213(d) recognizes that “medical care” includes certain amounts paid “for transportation primarily for and essential to medical care.”  Costs associated with actual movement from place to place include cost of taxis, buses, trains, airplanes, rental cars, and ambulances hired to go to and from the point of medical treatment.  Special rules may apply with respect to these costs.  For example, the actual cost of gas and oil for a car may be claimed, or the standard mileage rate.  Transportation expenses for a companion may also qualify where the companion is needed to accompany the individual for medical reasons.  Provided the transportation is for medical care, other costs such as parking fees and tolls are also considered reimbursable medical care.

Meals.  With respect to meals, tax favored treatment is very limited.  Meal expenses incurred while away from home to undergo medical treatment are not expenses for medical care unless the meals are provided at a hospital or similar institution at which the individual is receiving medical care.

 Lodging.  With respect to lodging, up to $50 per night can be provided on a tax-favored basis provided:

  • the lodging is not lavish or extravagant;
  • the reason for being away from home is primarily for and essential to receiving medical care;
  • the medical care is provided by a physician in a licensed hospital (or in a medical care facility that is related to, or is the equivalent of, a licensed hospital); and
  • there is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

Lodging expenses of a companion that accompanies a patient for medical reasons may also qualify.  The maximum for that companion is also $50 per night.

Substantiation.  Reimbursement of expenses under the employer’s benefit program needs to be substantiated to satisfy the above required elements.  To provide the maximum benefit possible on a tax favored basis, care must be taken to properly draft and administer major medical coverage, HRAs, health FSAs, or MERPs to provide non-taxable reimbursement only up to the Section 213(d) limits with the overage being treated as taxable income.

Bottom line, deciding whether to add or expand abortion and abortion-related expenses (e.g., travel/meals/lodging) is a benefits decision for the employer.  Like any other benefits decision, the employer needs to understand what it already offers and appreciate the way offering the new benefit impacts the already existing coverage and triggers additional requirements.


NEXT WEEK:  Next week’s article goes through a step-wise approach to determining coverage expansion options, including the application of the approach to an employer-sponsored fully insured HDHP with an integrated HRA.