Eighth Circuit Rules on ERISA’s “Church Plan” Exemption

Background

On March 27, 2020, the Eighth Circuit in Sanzone v. Mercy Health, 2020 U.S. App. LEXIS 9537 (8th Cir. March 27, 2020), ruled on several key issues on the “church plan” exemption to ERISA.  As background, beginning in 2013, plaintiff’s counsel filed ERISA class-action cases across the country challenging the application of ERISA’s “church plan” exemption to non-profit church-affiliated hospital organizations.   In 2017, the Supreme Court ruled in Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652 (2017), that ERISA’s “church plan” exemption includes plans maintained by a church-affiliated organization whose principal purpose is the funding or administration of that plan. This meant that plans of non-profit church-affiliated hospitals, social service organizations, schools and the like could qualify for this exemption if they meet these statutory requirements.

Plaintiffs have also asserted the “church plan” exemption violates the Establishment Clause of the First Amendment.  Although the Advocate Supreme Court adopted a broad construction of the “church plan” exemption, it did not address this issue; subsequently, the U.S. Government filed a brief in Sanzone v. Mercy Health arguing the “church plan” exemption fully follows the First Amendment.

After Advocate, plaintiff’s counsel has continued to pursue cases challenging what is a “principal purpose organization,” including what is required to “maintain” a plan, and whether the “church plan” exemption violates the Establishment Clause of the First Amendment.

Sanzone v. Mercy Health Ruling

The Eighth Circuit addressed these issues in Sanzone.  The focus in Sanzone (as in other post-Advocate “church plan” cases) is on whether a hospital’s internal benefits committee constitutes a principal purpose organization. Consistent with rulings by other courts, the Eighth Circuit said yes, applying ordinary meanings to the statutory terms “maintain” and “organization.”

First, the Eighth Circuit looked to dictionary definitions to conclude “maintain” means “to continue something” or “to care for (property) for purposes of operational productivity.”  The court held the internal benefits committee met this definition, i.e., the committee was responsible for plan administration and interpretation, and had all discretionary authority to carry out the provisions of the plan.

Second, the Eighth Circuit again looked to dictionary definitions to conclude “organization” means “an administrative and functional structure” or “a group of people who work together in an organized way for a shared purpose.”   The court concluded the internal benefits committee met this definition, as it was a group of people who worked together for a shared purpose.

Finally, the Eighth Circuit addressed the Establishment Clause issue. The district court had dismissed this constitutional claim for lack of standing, i.e., for lack of an impending redressable injury from current plan underfunding.  The Eighth Circuit noted plaintiff’s claimed injury was broader than that and remanded for the district court to consider whether deprivation of ERISA protections would constitute a sufficient injury to confer standing.

Implications

The Eighth Circuit’s ruling that an internal benefits committee is sufficient to qualify for the “church plan” exemption follows rulings by other courts and provides helpful guidance to assist church-affiliated non-profits in maintaining this exemption for their plans. These cases provide examples of “best practices” that can assist church-affiliated organizations in complying with this exemption.

On the constitutional Establishment Clause challenge, the Eighth Circuit has rejected the no-standing ground adopted by other courts, which had allowed them to avoid ruling on the merits of this issue.  This means Sanzone may become the “test case” on this issue.  While resolving constitutional issues can be difficult to predict, based on our work defending other church-affiliated organizations on this issue, we believe that there are sound defenses to this constitutional challenge.

COVID-19 Update – Ohio Issues FAQs on Health Insurance Flexibility for Employers

As previously discussed, the Ohio Department of Insurance (ODI) issued guidance pursuant to Governor Mike DeWine’s emergency declaration and order from March 9, 2020. Under Bulletin 2020-03, the ODI lifted certain restrictions for group health plans, limited premium increases, and expanded the rules for the continuation of coverage. Recently, the ODI issued FAQs to clarify its Bulletin.

In its FAQs, the ODI sought to clarify the types of applicable health plans affected by the Bulletin and provided much needed clarification relating to the 60-day grace period for premium payments.

Under the FAQs, the ODI explained the Bulletin applies only to fully insured employer group health plans and not self-insured plans, except Multiple Employer Welfare Arrangements and several non-federal governmental plans. In addition to major medical plans, the Bulletin also applies to supplemental plans and limited duration plans issued to employers.

The ODI also addressed open issues relating to the deferral of premium payments. Under the FAQs, insurers must accommodate employers by extending premium payment due dates or waiving late or reinstatement fees in instances when employers are unable to make premium payments due to COVID-19-related disruptions. The recent guidance from the ODI does not change the rules for retroactive termination or rescission at the end of the grace period.

Perhaps most notably, the FAQs clarified the reference in the Bulletin to “insureds” when providing for the 60-day grace period for premium payments. The FAQs make it clear that the premium payment grace period applies to insurers providing coverage to employer group health plans regulated by the ODI. The ODI left it up to the individual employer as to whether or not to provide employees with a grace period to pay insurance premiums.

The IRS Extends Looming Restatement Deadlines

The IRS announced on March 27th via its website the extension of the initial remedial amendment period for Section 403(b) plans from March 31, 2020, to June 30, 2020.   It also extended the deadline for the second six-year remedial amendment cycle for pre-approved defined benefit plans from April 30, 2020, to July 31, 2020.

403(b) Plans

 Revenue Procedure 2019-39 includes a system of recurring remedial amendment periods for both Individually Designed and Pre-approved 403(b) plans.  The initial remedial amendment period began on the later of January 1, 2010, or the effective date of the plan and was to end as of March 31, 2020.  Cycle 2 for the 403(b) pre-approved plans was to begin April 1, 2020.  This announcement extends the initial remedial amendment period end date to June 30, 2020, and the beginning date for Cycle 2 to July 1, 2020.  The IRS states it will issue more guidance related to the extension.

Defined Benefit Plans

Announcement 2018-05 originally determined April 30, 2020, as the end of the second six-year remedial amendment cycle for defined benefit plan.  The website announcement also extends this deadline from April 30, 2020, to July 31, 2020.  The IRS states it will consider an employer who adopts a pre-approved defined benefit plan approved based on the 2012 Cumulative List by July 31, 2020, to have timely adopted a plan under the second six-year remedial amendment cycle as described in Revenue Procedure 2016-37.

This extension of the Defined Benefit Cycle 2 remedial amendment period delays the beginning date for the third six-year cycle remedial amendment cycle to August 1, 2020, but the end date remains the same, January 1, 2025.  It does not change the beginning of the submission period for advisory opinion letter applications for the Cycle 3 remedial amendment period, which remains August 1, 2020, ending July 31, 2021.

Should you have questions about plan document restatements or the IRS’s announcement, please contact us for assistance.  We will, of course, keep you updated as the IRS issues additional guidance.

Special COVID-19 Health Insurance Enrollment Windows and Waivers

As a result of the ongoing COVID-19 pandemic, we are observing all sorts of never-before-seen changes in the fully-insured group health plan space.  Many insurers are liberally waiving their normal rules to accommodate the continuation of coverage to employers and employees in their time of need.  Although the accommodations are welcome, employers need to exercise caution before allowing employees to take full advantage of the changes.  There are ERISA and tax law implications to consider that are often left out of the insurer announcements related to coverage enhancements, and employee communications of legal mandates are key.

Special Enrollment Event

Some insurers are treating the COVID-19 pandemic as a special enrollment event and are permitting employers to enable employees to enroll in group health plan coverage during a limited mid-year window. However, for employers that offer group medical plan benefits to employees on a pre-tax basis, the tax rules under Section 125 of the Internal Revenue Code need to be considered.

           The Current Tax Law:  Section 125 does not permit employees to change their coverage elections due to a pandemic.  Instead, the current tax law requires a permissible election change event to allow a change to pre-tax benefit elections, and the employer’s Section 125 plan needs to include that election change rule.

Permissible election change events, which have been firmly established by the IRS for years, include employment changes, such as a commencement of or return from an unpaid leave of absence or a change in the worksite, but only if the change is because of and corresponds with a change in status that affects eligibility for coverage under an employer’s plan.  This established definition might fit for the COVID-19 related changes some employees are experiencing, but not all.  Insurers are proposing to allow even active employees who have experienced no employment change to enroll in coverage.

The Section 125 plan election change rules also allow changes in the case of “significant” coverage changes.  However, absent further guidance, it is unclear whether the IRS would view the group health plan coverage changes mandated by the Families First Coronavirus Response Act or other future legislation as “significant.”

           Actions for Employers:  If the Section 125 regulations serve as an impediment to what an employer wants to do, it is possible to implement coverage elections outside of Section 125 plans.  This means that employees who enroll in a plan during the special COVID-19 enrollment window would need to pay the employee portion of the premiums for coverage with after-tax dollars.  Before pressing “go,” note:

  • Many payroll systems are not set up to accommodate both pre-tax and post-tax group medical plan deductions. This question must be resolved in consultation with payroll teams or providers before this opportunity is offered.
  • Most employees do not expect their group medical insurance premiums will be subject to taxation. Communicating with employees about the taxation aspects of this enrollment decision at the same time the opportunity is presented to employees is key to setting employee expectations and avoiding future conflict.
  • Other employee benefit plan documents, including wrap plans, need to be reviewed and amended, as needed, to effectuate this unique coverage offering.

Waiver of Eligibility Conditions

Other insurers are waiving active service and hours of service eligibility conditions.  However, remember that, under ERISA, the terms of the plan control benefit entitlements.  Thus, even though insurance carriers will not enforce their rights to cancel coverage when the plan terms are not followed, employers still need to be vigilant in ensuring that their plan documents reflect the coverage being offered.  Employers should seek amendments to policies and plans to reflect the leniencies extended by insurers.  And employers should seek written confirmation (including detailed definitions of important terms such as “furlough” and “temporary leave of absence”) of any changes in an insurer’s eligibility conditions.

Answers to Your Questions

Our employee benefits team is on the front lines of handling these unique issues presented by COVID-19 responses taken by employers, insurers, and government regulators.  We help employers understand the legal issues and develop strategies to meet changing business needs.  Please contact us if we can help.

COVID-19 Update – Ohio Changes Rules for Health Insurance Coverage

The Ohio Department of Insurance (ODI) has issued guidance pursuant to Governor Mike DeWine’s emergency declaration and March 9, 2020, order directing state agencies to implement procedures consistent with recommendations from the Department of Health. The ODI guidance applies to insurance companies, multiple employer welfare arrangements, non-federal governmental health plans, and other entities subject to the jurisdiction of the ODI.

Under Bulletin 2020-03, group health plan eligibility restrictions were lifted, premium increases limited, and rules for continuation of coverage expanded. Insurers must allow employers to continue coverage for employees who would otherwise be ineligible as a result of a reduction in hours worked. Further, any “active at work” provision will not operate to limit eligibility for coverage under a group health policy.

As for premium rates, insurers are prohibited from increasing premiums based on a reduction in enrollment due to COVID-19. Insurers also are mandated to provide insureds with the option to defer premiums for up to 60 days, interest-free.

For health plans with at least one active employee enrolled, all former employees are eligible for continuation coverage under COBRA (applicable to employers with 20 or more employees) or for 12 months under the Ohio continuation rules for smaller employers. For employees that lose coverage, there will also be a special enrollment period and waiver of certain enrollment procedures when coverage is purchased on the federal exchange.

Please contact a Jackson Lewis attorney if you have any questions.

Employee Benefits Issues to Consider Before Deciding to Furlough or Terminate Employees During the COVID-19 Pandemic

With the combination of our nation’s response to COVID-19 and the resultant economic downturn, employers of all sizes face the moral and financial dilemma of evaluating employee headcounts while businesses are grappling with the reality of the current situation.  Many employers are considering furloughs, or other types of approved leaves of absences, to reduce immediate payroll, hoping the downturn lasts for a period of a few weeks instead of months. Other employers are opting to implement systemic reductions in the workforce and let employees go.  The focus of this article is to highlight that different employment actions produce different employee benefits consequences that must also be part of any employment decision.

No general rules apply to every situation, as all circumstances are somewhat unique.  Below is a list of several key issues employers must consider as they evaluate their employee benefits programs with an eye toward reducing payroll costs:

  • Don’t assume coverage continues during leaves or furloughs or automatically ends immediately upon termination of employment. Plan terms typically dictate whether active coverage can continue during short-term leaves of absence, whether paid or unpaid, and many plans have minimum hour requirements to maintain active coverage.  Employers that expand coverage for ineligible employees outside the terms of the plan or policy without consent from the insurer or stop loss carrier face significant financial exposure.
  • COBRA continuation coverage (or state continuation coverage, if applicable) generally must be offered for all group health plans when there is a loss of coverage because of a termination of employment or reduction in hours. An increase in the employee’s share of the premium because of his or her reduction in hours (including to zero, as in a furlough) is a loss of coverage for this purpose.
  • The Affordable Care Act employer penalty should be considered. Terminating the group health plan coverage for an employee when a leave or furlough begins may cause an ACA penalty for failing to offer coverage to 95% of full-time employees.  And the coverage offered must remain affordable to avoid an ACA penalty, which may require a continued or increased employer subsidy, whether on active or COBRA coverage.
  • Plan for how employees will keep paying monthly premiums/contributions to maintain coverage during any leave period. Failure to pay monthly premiums could cause coverage to lapse without COBRA protections for health, dental and vision plans, invalidate future Health FSA and Dependent Care FSA claim reimbursements and could also trigger obligations to reinstate life and other disability plan arrangements only through evidence of insurability.  Arrangements should be made in advance with employees about how they will keep contributing to any allowable coverage during leave, whether through a COBRA vendor, ACH payment from a personal checking account or by mail.
  • Before taking any employment actions, the employer should first determine whether it maintains or maintained any formal or informal severance plan or policy that provides a precedent for what benefits may be offered to terminated employees.
  • 401(k) and other retirement plan implications must be considered. A reduction in force, layoff or furlough could cause a “partial termination” under a 401(k) or other retirement plan rules, which triggers 100% vesting for affected participants.   Review hardship and other distribution provisions, and make sure plan loan provisions are reviewed and followed so that “deemed distribution” consequences may be avoided.  Service credit for vesting and employer contributions can also still be required during leaves or breaks in service.  “Safe harbor” match or other fixed contribution provisions should be suspended only after considering the potential ramifications and taking the required implementation measures. Employers should be vigilant in maintaining the same payroll deposit schedule for employee salary deferrals.
  • Employers should review all deferred compensation agreements and other employment agreements for any leave or termination impact. Such agreements may have short-term bonus payouts or other incentive payment obligations due to any “termination without cause” or other “separation from service” that cannot be altered without a review of all implications of Section 409A of the Tax Code. These rules generally prohibit employees from making salary deferral election changes mid-year (including canceling elections) and/or changing the timing of payments.

This is by no means an exhaustive list of all issues to consider before final decisions are made related to any short-term or long-term reduction in employee payroll.  Each employer must evaluate the issues to find the best options during these challenging times.  Please contact any of our Employee Benefit attorneys to help evaluate the issues based on your specific factual circumstances and plan designs.

CalSavers Not Preempted by ERISA

With an alarming number of American workers lacking adequate retirement savings, California and a handful of other states began implementing state-sponsored retirement savings programs.  The CalSavers Retirement Savings Program (CalSavers) was first launched as a pilot program in 2018 and then expanded to all eligible employers in the state in July 2019 in order to provide employees access to a retirement savings program without the administrative complexity for employers. CalSavers requires employers who do not offer employer-sponsored retirement plans to its employees, such as a 401(k) plan, to automatically enroll their employees into the CalSavers plan and to remit payroll deductions to the CalSavers trust for each employee who does not affirmatively opt-out of participation in the plan.  More…

Implications of COVID-19 on Your Health and Welfare Benefit Plans

Employers are grappling with employee benefit issues in response to the 2019 Novel Coronavirus (“COVID-19”).  Efforts are being made to pave the way for widespread testing by eliminating cost barriers such as deductibles, copayments, coinsurance, or High Deductible Health Plan restrictions to ensure employees and their families are proactively being diagnosed once symptoms present, to ensure proper care management for the participant, and to assist in preventing the spread of the virus.  Read on for more information about the changes that might impact your employer-provided health insurance and what you need to do to comply in this rapidly changing environment:

Remove Barriers to Coverage

  • Fully-Insured Plans:  Several states (including Washington, New York, California, Vermont, Maryland, Nevada, and Oregon) have issued mandates directing that fully-insured health plans regulated by the Department of Managed Health Care immediately reduce cost-sharing to zero for all medically necessary screening and testing for COVID-19.
  • Self-Insured Plans:  Many claims administrators are offering free testing for COVID-19 to self-funded plans, so employers sponsoring self-insured plans should check with their administrator regarding the voluntary waiver of COVID-19 testing costs.  Stop-loss policies usually have (advance) notice requirements that apply when the plan terms are changed, so consider notifying your stop loss carrier of any changes in coverage/benefits.
  • High Deductible Health Plans:  Last week the Internal Revenue Service issued Notice 2020-15 to confirm that until further guidance is issued, a High Deductible Health Plan (“HDHP”) still complies with HSA contribution guidelines if it provides health benefits associated with testing for and treatment of COVID-19 without a participant first satisfying the deductible.  The payment for such tests and treatment of COVID-19 under the HDHP can be considered “preventive care.”  More…
  • In Vitro Testing: The Families First Coronavirus Act (R. 6201) was passed by the U.S. House of Representatives in the early hours of March 14, 2020.  The bipartisan legislation, which currently applies only to employers of 500 or less, provides a number of important changes, but also makes special provisions for in vitro testing.  If enacted as written, a group health plan and a health insurance issuer offering group or individual health insurance coverage (including a grandfathered health plan (as defined in the Affordable Care Act)) would be required to provide coverage (without regard to any deductibles, copayments, or coinsurance) for approved in vitro diagnostic products for the detection of COVID–19.   Coverage would also be required for certain items and services furnished to an individual during health care provider office visits, urgent care center visits, and emergency room visits that relate to administration of an in vitro diagnostic product for the detection of COVID–19.  More…  

Employer Action Required

  • Plan Amendment:  A plan amendment is likely required to reflect any changes in coverage.  However, given the urgency of the current situation, it is likely allowable to offer expanded coverage before adopting a plan amendment.  Employee communications will be essential to keep your employee population up to date regarding available coverage.
  • Privacy Law Requirements: Employers should remember that even during the current pandemic, HIPAA privacy rules still apply to “covered entities” such as medical providers or employer-sponsored group health plans regarding individually identifiable health information.  While employers who receive information outside of the context of their group health plan are not subject to HIPAA’s restrictions regarding such information, health information should generally be treated as confidential as a range of employment law issues, including under the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, the National Labor Relations Act, and other federal and state laws might apply.  More…  

Additional Ways to Help Employees

  • Leave Donation Programs: Employers can provide leave-sharing arrangements that permit employees to donate PTO, leave, or vacation time in an employer-sponsored leave bank for use by other employees adversely affected by an event declared a major disaster or emergency by the President.  More…
  • Cash Payments to Affected Employees: Section 139 of the Internal Revenue Code provides that a tax-free disaster relief payment can be made in cash to any individual if the payment is a “qualified disaster relief payment.”  More…

This is a dynamic situation, and the laws are changing quickly.  Check for legal updates regularly, and contact Natalie Nathanson or your local Jackson Lewis attorney for more information.

Using Leave Sharing Plans with COVID-19

The IRS has issued specific guidance for the tax treatment of a leave-sharing arrangement that permits employees to donate PTO/ leave/vacation time in an employer-sponsored leave bank for use by other employees adversely affected by an event declared a major disaster or emergency by the President.  See IRS Notice 2006-59.

TAX TREATMENT OF DONATING EMPLOYEE

General Tax Rule

Generally, the employee who donates PTO/leave/vacation time will be treated as having W-2 compensation for the donated time (based on his or her rate of pay at the time of the donation).  This rule is based on the long-standing “assignment of income” tax law doctrine.

IRS Exceptions

The IRS has created several limited exceptions to the general rule:

  1. Medical leave-sharing plans.  See IRS Revenue Ruling 90-29.
  2. Major disaster leave-sharing plans.  See IRS Notice 2006-59.
  3. Leave-based donations of cash to charitable organizations in the case of qualified disasters, including:

Exception for Major Disaster Leave-Sharing Arrangement [IRS Notice 2006-59]

If an employer sponsors a “major disaster leave-sharing plan” that meets the requirements listed below:

  • Employees who donate leave will NOT be taxed on the donated leave time.
  • Employees who use donated leave will be taxed on the donated leave time used — e.g., the donated leave time used is treated as W-2 wages for all income and employment tax withholding purposes.

Major Disaster Leave-Sharing Plan” Requirements

A “major disaster leave-sharing plan” is a written plan that meets these requirements:

  • The plan allows a leave donor to donate accrued leave to an employer-sponsored leave bank for use by other employees adversely affected by a major disaster or emergency (as declared by the President).  An employee is considered “adversely affected” by a major disaster if it has caused severe hardship to the employee or a family member of the employee that requires the employee to be absent from work.
  • The plan does not allow a leave donor to donate leave to a specific leave recipient.
  • The amount of leave that a leave donor may donate in any year generally may not exceed the maximum amount of leave that he or she normally accrues during the year.
  • A leave recipient may receive paid leave (at his or her normal rate of compensation) from the donated leave bank.  Each leave recipient must use this leave for purposes related to the major disaster.
  • The plan adopts a reasonable limit, based on the severity of the disaster, on the period of time after the major disaster occurs during which a leave donor may donate, and a leave recipient must use, the donated leave.
  • A leave recipient may not convert leave received under the plan into cash in lieu of using the leave.

However, a leave recipient may use leave received under the plan to eliminate a negative leave balance that arose from leave advanced to the leave recipient because of the effects of the major disaster.  A leave recipient also may substitute leave received under the plan for leave without pay used because of the major disaster.

  • The employer must make a reasonable determination, based on need, as to how much leave each approved leave recipient may receive under the plan.
  • Leave donated due to one major disaster may be used only for employees affected by that disaster.

Except for an amount so small as to make accounting for it unreasonable or administratively impracticable, any leave donated under a major disaster leave-sharing plan not used by leave recipients by the end of the period specified in the plan must be returned within a reasonable period of time to the leave donors (or, at the employer’s option, to those leave donors still employed by the employer) so the donor can use the leave.

  • The leave returned to each leave donor must be in the same proportion as (1) the leave donated by each leave donor bears to (2) the total leave donated because of that major disaster.

If a leave-sharing arrangement does not meet these specific requirements, then the donating employee MUST be treated as having W-2 compensation for the donated time (based on his or her rate of pay at the time of the donation).  See, IRS Letter Ruling 200720017.

TAX TREATMENT OF EMPLOYEE RECEIVING DONATED PTO/LEAVE/VACATION TIME

Any payments received by an employee using donated PTO/leave/vacation time under the program must be treated as W-2 wages for all income and employment tax withholding purposes.

WHAT AN EMPLOYER HAS TO DO

  • In order to use either of the two tax exceptions described above, the employer must have a formal written leave-sharing program.
  • The IRS does NOT require an employer to obtain any pre-approval of a leave-sharing program nor does the IRS require an employer to file any subsequent reports about the program.  Also, since a leave-sharing plan is NOT subject to ERISA, there are no filings or other actions required by the DOL   In short, the only employer reporting obligation is to properly report W-2 wages and withhold taxes.

CASH PAYMENTS TO AFFECTED EMPLOYEES

Note that separate from a major disaster leave-sharing program, Section 139 of the Internal Revenue Code provides that a tax-free disaster relief payment can be made in cash to any individual if the payment is a “qualified disaster relief payment.”  Both the Congressional report for Section 139 and the IRS have made clear that the requirements for making tax-free disaster relief payments are very simple and easy to meet.

The Congressional report and Section 139 specifically provide that qualified disaster relief payments are excluded from gross income and from wages and compensation for employment taxes.  As a result, an employer can make tax-free disaster relief payments to its employees.

  • Section 139 applies only to the federal tax treatment of the payments.  State tax laws may or may not be the same.

Note that an employee who donates cash to another employee can make the donation only out of after-tax income.

Jackson Lewis can help you with your leave sharing/donation plan.

The IRS Addresses Expenses Related to COVID-19

Like many other areas, employers are grappling with issues in response to the pandemic growth of the 2019 Novel Coronavirus (aka, “COVID-19”) in the workplace.  One newer topic has been related to the desire to ensure employees and their families are proactively being diagnosed once symptoms present, to ensure proper care management for the employee but also to assist in preventing the spread of the virus.

The immediate concern is that employees are less likely to seek early diagnosis and treatment when enrolled in a high deductible health plan (HDHP) because they are personally responsible for the full cost of claims and expenses for treatment if they have not yet met their annual deductible.  One approach suggested by the insurance carrier and consulting community, which is also supported by the Trump Administration, is to amend the plan to allow the costs of being tested and treated for COVID-19 to be covered without being subject to deductibles and other cost-sharing arrangements.  The challenge has been that existing IRS guidance was unclear whether such cost-sharing arrangements could be deemed preventive care which would exempt tests and treatment of COVID-19 claims from the standard definition of a “high deductible health plan” under Internal Revenue Code Section 223(c)(2)(A), but not jeopardize contribution eligibility for any amounts contributed to a health savings account (HSA) by the employee and/or employer for such “first dollar coverage” under the plan.

Fortunately, the Internal Revenue Service (“IRS”) just issued Notice 2020-15 to confirm that until further guidance is issued, an HDHP plan still complies with HSA contribution guidelines if it provides health benefits associated with testing for and treatment of COVID-19 without a participant first satisfying the deductible.  The payment for such tests and treatment of COVID-19 under the HDHP can be considered “preventive care.”

By allowing this assistance without jeopardizing the status of an HDHP, individuals who participate in an HDHP are still eligible to contribute to their tax-favored HSA while also allowing the Plan to provide additional financial assistance to offset at least a portion of the cost of claims related to COVID-19.  This is welcomed news, but still more questions remain.  For example, what costs can actually be considered a “treatment” of COVID-19?  If an individual goes to urgent care, a primary care doctor, or even consults with a telehealth medical professional and then the individual tests negative for COVID-19 but positive for influenza A or B, does that individual have to pay the applicable cost of that medical treatment even though they may have been symptomatic to COVID-19 initially?

Today’s guidance possibly opens more questions than answers on those topics, particularly since this latest guidance makes no other modification to prior guidance on HDHP compliance issues; vaccines and other preventive care under the Safe Harbor in §223(c)(2)(C) remain unchanged.  Employers with fully insured health plans will have some of these issues resolved by their insurance carrier, who will be separately announcing changes to existing insurance policies and coverages offered in order to be in compliance with state and federal laws.  However, other questions will remain about HSA compliance issues.  Likewise, employers with self-insured plans have more discretion, and more scrutiny, over the changes made to the health plan in response to COVID-19.

Please contact your Jackson Lewis attorney for additional assistance or if you have other questions.

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