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Since 1996, when Congress passed the Health Insurance Portability and Accountability Act (HIPAA), employers have been struggling with whether and to what extent they could offer incentives to employees to participate in certain “wellness programs.” The Equal Employment Opportunity Commission’s (EEOC) position on these programs has been a significant driver of those struggles, primarily due to concerns about whether such programs are “voluntary.”

On January 7, the EEOC proposed a new approach that may provide employers some certainty, particularly as many employers are wondering about incentives to encourage employees to receive a COVID-19 vaccine. The agency proposed regulations under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) which, for those interested, provides a brief history of wellness programs, and EEOC’s evolving position concerning same.

A (Very) Brief History

In short, the EEOC stated its position on voluntariness in 2000, in its Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the Americans with Disabilities Act: a wellness program is “voluntary” as long as an employer “neither requires participation nor penalizes employees who do not participate.” See Q/A 22.

During that time and moving forward, however, other federal agencies which regulated group health plans (Health and Human Services, Department of Labor, and Internal Revenue Service) provided a regulatory path for employers to incentivize employees to participate in certain wellness programs. A version of those rules were codified in the Affordable Care Act (referred to herein as the “ACA/HIPAA rules”), evidencing Congress’ intent to permit such incentives, albeit subject to other federal laws, such as ADA and GINA. The EEOC’s initial attempt to harmonize by regulation its position on wellness programs with the ACA/HIPAA rules failed when its regulations addressing incentives were judicially vacated. These new proposed regulations take a different approach.

The Proposed Regulations.

The EEOC proposed two sets of regulations – one under the ADA and one under GINA:

ADA.

Under the ADA proposed rule, a wellness program is a program of health promotion or disease prevention that includes disability-related inquiries or medical examinations. Disability-related inquiries, such as health risk assessments and biometric screenings, generally include a series of questions “likely to elicit information about a disability,” while medical examinations are procedures or tests that seek information about an individual’s physical or mental impairments or health. Programs that do not include disability-related inquiries or medical examinations (e.g., rewarding employees for attending a smoking cessation class) would not be subject to the ADA proposed rule. The rule also would incorporate essentially the same subcategories of wellness programs as under the ACA/HIPAA rules – participatory and health contingent. Continue Reading Wellness Programs and Water Bottles, the EEOC Proposes New Rules under the ADA and GINA

This term, the U.S. Supreme Court returns to a challenge to the Affordable Care Act (ACA). In the consolidated cases of California v. Texas (No. 19-840) and Texas v. California (No. 19-1019), the Court will consider whether a group of states and private individuals have standing to challenge the ACA. If that procedural hurdle is cleared, the Court then must consider whether the ACA’s individual mandate is constitutional, and, if it is not, whether that requirement can be severed from the ACA or whether the entire ACA must fall.  More…

Notice 2020-68 from the IRS provides valuable clarification for sponsors of qualified plans, 403(b) plans, and 457(b) governmental plans, as well as IRA holders, related to certain provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the Bipartisan American Miners Act of 2019.

A new tax credit under the SECURE Act aims to offset the costs of establishing and maintaining a qualified employer plan that provides an eligible automatic enrollment arrangement (EACA). The $500 credit is also available to eligible employers that amend an existing plan to add an EACA.  More…

IRS Notice 2020-46 addresses the tax treatment of employees who elect to have their employers donate sick, vacation or personal leave as cash payments to charitable organizations that provide relief to victims of the COVID-19 pandemic.

The Notice provides that the donated leave should be not be treated as W-2 wages to the donating employees.  The donated leave should not be included in Box 1 [wages subject to income tax], Box 3 [wages subject to Social Security tax] or Box 5 [wages subject to Medicare tax] of the Form W-2.  But employees may not claim a charitable contribution deduction for the value of the donated leave.

The Notice also provides that an employer making the cash payments of the donated leave to a charitable organization may either claim a charitable contribution deduction for the payments or a compensation deduction.

The tax treatment provided by the Notice is essentially identical to prior IRS guidance regarding leave-based donations made regarding Hurricane Harvey and Tropical Storm Harvey, Hurricane Irma and Tropical Storm Irma, and the Ebola Virus.

Please contact a team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

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.

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.

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.

As published by Law360 (January 13, 2020, 5:43 PM EST) —

Following oral arguments that were held in February 2018, in a long-anticipated decision in the National Retirement Fund v. Metz Culinary Management Inc., the U.S. Court of Appeals for the Second Circuit held that a multiemployer pension fund’s use of a lower interest rate that was adopted after the statutory withdrawal liability measurement date violated the Employee Retirement Income Security Act. The decision will greatly benefit certain employers who (as Metz did) withdrew from the National Retirement Fund, or NRF, during 2014 and may also impact other employers and funds.

Under the withdrawal liability rules set forth in ERISA as amended by the Multiemployer Pension Plan Amendments Act, or MPPAA, an employer who withdraws from a multiemployer pension fund is responsible for its allocable share of the fund’s unfunded vested benefits. At issue in Metz was the interest rate that was used to calculate the fund’s unfunded vested benefits and therefore Metz’s withdrawal liability.

According to court documents, Metz withdrew from the NRF in 2014. Under the MPPAA, withdrawal liability is calculated as of the last day of the plan year preceding the plan year of the withdrawal. Since the NRF operates on a calendar-year basis, the applicable measurement date for calculating Metz’s (and all other employers who withdrew from the NRF in 2014) withdrawal liability was Dec. 31, 2013.

In October 2013, the NRF replaced Buck Consultants LLC, who had been the NRF’s actuary for many years. Buck had used an interest rate assumption of 7.25% for withdrawal liability purposes for many years prior to its ouster. In June 2014, the NRF’s new actuary announced to the NRF trustees that the interest rate assumption was being changed from the prior 7.25% rate to a floating rate based on interest rates published by the Pension Benefit Guaranty Corp., or PBGC.

As of Dec. 31, 2013, that PBGC rate was 3%. Since future liabilities are discounted back to present value to calculate unfunded vested benefits, the interest rate assumption bears an inverse relationship to withdrawal liability; that is, a lower interest rate will result in higher withdrawal liability, and vice versa. Accordingly, the interest rate assumption change had a dramatic effect on Metz’s (and others’) withdrawal liability, increasing it from approximately $254,000 (at Buck’s prior 7.25% rate) to nearly $1 million (using the revised 3% rate).

The NRF issued a demand for the higher withdrawal liability amount, and Metz challenged NRF’s demand under the MPPAA’s mandatory arbitration regime. Metz argued in arbitration that the retroactive application of the lower interest rate assumption (adopted in 2014 and applied as of the Dec. 31, 2013, measurement date) violated the MPPAA.

The arbitrator decided in favor of Metz, finding that “there is no dispute that [the new actuary] did not adopt the PBGC rates as the interest rate assumption for withdrawal liability purposes until some time in 2014” and that the NRF’s decision to apply this rate “retroactively so as to increase the withdrawal liability assessed to Metz and other employers who withdrew from the Fund after December 31, 2013, was violative of MPPAA.”

The NRF appealed the arbitral holding to the U.S. District Court for the Southern District of New York and the district court reversed, vacating the arbitral award. The district court held that ERISA does not require actuaries to calculate withdrawal liability based on interest rate assumptions used prior to the statutory measurement date.

The district court further held that the withdrawal liability interest rate assumption must be affirmatively decided each year and that (contrary to the arbitrator’s finding) the rate in effect during the prior year does not remain in effect unless changed, holding that MPPAA “does not allow stale assumptions from the preceding plan year to roll over automatically.”

On appeal, after noting that the parties had used “copious amounts of ink in argument” over the applicable standard of review and other minutia, the Second Circuit succinctly stated the legal issue as “whether, under the MPPAA, a fund may select an interest rate assumption after the Measurement Date and retroactively apply that assumption to withdrawal liability calculations.”

The court first noted that the MPPAA (specifically, ERISA Section 4213) is silent as to whether the interest rate assumptions must be affirmatively elected, or whether the rate in effect during a given year automatically remains in effect for the next year absent an affirmative change.

As noted, the district court had held that Section 4213 does not allow assumptions from the prior year to roll over. The Second Circuit expressly rejected this finding, concluding that “there is no statutory or caselaw support for that proposition, and we do not agree with it.”

The Second Circuit then turned to Section 4214 of ERISA, which requires multiemployer plans to provide notice to employers prior to implementing any withdrawal liability plan rule or amendment. Citing legislative history, the Second Circuit concluded that Section 4214 was intended to protect employers from the retroactive application of rules relating to the calculation of withdrawal liability.

The Second Circuit found that the retroactive selection of interest rate assumptions for withdrawal liability purposes (the position advocated by the district court) was inconsistent with Congress’ stated intent, concluding that withdrawal liability interest rate assumptions do not “remain open forever and subject to retroactive changes in later years.”

In reaching its decision, the Second Circuit correctly recognized the “significant opportunity for manipulation and bias” that would result if funds were allowed unfettered discretion in retroactively selecting interest rate assumptions after the measurement date. The court feared that under such a rule:
Nothing would prevent trustees from attempting to pressure actuaries to assess greater withdrawal liability on recently withdrawn employers than would have been the case if the prior assumptions and methods actually in place on the Measurement Date were used.

The Second Circuit then noted that this “opportunity for manipulation and bias [was] particularly great where [as was the case here] the funds use different interest rate assumptions for withdrawal liability than those used for other purposes such as minimum funding.” The Second Circuit concluded that the retroactive application of the interest rate change represented the type of situation that could be attacked as presumptively unreasonable under the U.S. Supreme Court’s decision in Concrete Pipe and Products of California Inc. v. Construction Laborers Pension Trust for Southern California.

In an area where the law is extremely skewed in favor of funds, Metz represents a significant win for employers. Certainly, the numerous employers who withdrew from the NRF in 2014 and are currently contesting their withdrawal liability demands in arbitration will benefit greatly from the decision, since their withdrawal liability should (as the Second Circuit ordered) be recalculated using the higher 7.25% rate that was in effect on the Dec. 31, 2013, measurement date.

While other employers who withdrew from the NRF in 2014 and did not demand arbitration will likely not be benefit in the same way (since withdrawal liability becomes fixed and payable absent an employer timely demanding arbitration), the case serves as a good example of the need for experienced counsel in this area. Metz could also impact other multiemployer plans and employers who have withdrawn from such plans, since NRF is likely not the only plan to have changed the withdrawal liability interest rate assumption in this manner.

 

Last week, the IRS issued it updated Form 1094-C and 1095-C instructions for 2019. Employers that employ New Jersey residents, however, may have more reading to do. New Jersey responded to the federal repeal of the Affordable Care Act’s (ACA) individual mandate, by enacting a mandate of its own. The New Jersey Health Insurance Market Preservation Act (Act), which became effective on January 1, 2019, imposes a penalty on New Jersey taxpayers who do not have minimum essential coverage during each month of the year. But, the Act also imposes some obligations for employers.

Requirements for individuals

Beginning January 1, 2019, Garden State residents who fail to maintain coverage will be subject to a Shared Responsibility Payment (SRP) due with their 2019 New Jersey Income Tax return. The amount of the SRP is generally based on income and family size and is capped at the statewide average annual premium for Bronze Health Plans in New Jersey. For individual taxpayers, the penalty could be as little as $695 or as much as $3012, and it goes up from there for families. Find out more here.

Requirements for employers

In order to administer the penalty, New Jersey needs third parties to verify health coverage information supplied by individual taxpayers. Accordingly, the state is looking to employers (including out-of-state employers) and all other providers of minimum essential coverage to New Jersey residents to send health-care coverage returns to the state for the 2019 tax year. In short, this means that for 2019, employers that employed New Jersey residents may have to make a filing with the state. Employers will transmit these returns through New Jersey’s system for processing W-2 forms.

One question some employers have is whether they have a reporting requirement to New Jersey, even if they do not have Form 1094/1094 reporting requirements under the ACA to the IRS – such as if the employer is not an “applicable large employer” under the ACA and offers only fully-insured coverage. The Act generally provides that every employer sponsoring an employment-based health plan that provides minimum essential coverage to a New Jersey resident must file a return with the state concerning that resident’s coverage. In the absence of additional guidance from the state, employers with New Jersey residents should seek appropriate counsel concerning their reporting obligations.

If reporting is required, the state will permit employers to send the same Forms 1094/1095 that they transmit to the IRS to satisfy the Act’s requirements. However, the state encourages companies to send data pertaining only to New Jersey full-year and part-year residents as providing information on non-residents of New Jersey may raise privacy and other issues. Coverage returns must be filed with New Jersey no later than March 31, 2020.

Employers with New Jersey employees also may want to encourage their employees who receive Form 1094/1095 from them to provide those forms to the employees’ dependents for completion of their own NJ state tax returns, if applicable.

For more information about these requirements in New Jersey, check out the information site set up by the state.

 

Worksite medical clinics, some offering round-the-clock access to medical providers via telemedicine, seem to be growing in popularity.  Promoters tout cost savings resulting from what would otherwise be lost productivity (employees whiling away afternoons waiting to see their private doctors or having to drive long distances to have blood drawn for routine laboratory work) and expenses otherwise borne by self-insured group health plans at a far higher cost per service.  Some worksite clinics have existed for decades for reasons other than cost-savings – for example, to ensure immediate treatment is available to employees if work-related injuries or illnesses occur or as part of a workplace well-being program.

The variety of reasons for having worksite clinics has caused at least as much variety in worksite clinic designs – from those that provide only first aid treatment to employees if workplace injuries occur to those that provide a full array of primary medical care services to employees and family members despite the source of injury or illness.  There also are a variety of legal considerations applicable when employers provide medical care at the worksite – particularly if the arrangement constitutes an employer group health plan.

An employer group health plan is an arrangement established by an employer to provide or pay for medical care – something all worksite clinics do.  Group health plans generally are subject to specific disclosure and reporting requirements under the Employee Retirement Income Security Act (ERISA), continuation requirements under the Consolidated Omnibus Budget Reconciliation Act (COBRA), special tax treatment conditions under the Internal Revenue Code (IRC), privacy and other requirements under the Health Insurance Portability and Accountability Act (HIPAA), and health care reform provisions under the Patient Protection and Affordable Care Act (ACA).  That said, a worksite clinic might be exempt from some or all of these requirements.

Unfortunately, whether a worksite clinic is exempt from one or another compliance requirement is a murky issue.  If the worksite clinic does more than treat minor workplace injuries and illnesses during work hours, it will be subject to ERISA, including the requirements of issuing a summary plan description and filing an annual Form 5500.  It also will be subject to COBRA, unless it is primarily providing free first aid treatment to employees for workplace injuries and illnesses.  The employer must consider how it will satisfy these disclosure, reporting and coverage continuation requirements or manage the risk of violating those requirements.  How would the employer respond to a terminated employee’s assertion of a COBRA right to continued access to the clinic?

An ERISA-covered worksite clinic might still escape other requirements unique to group health plans under HIPAA and the ACA if it qualifies as an excepted benefit by virtue of being a worksite medical clinic.  However, the enforcement agencies have not defined a worksite medical clinic for these purposes.  Given the nature of the other enumerated excepted benefits – all of which are secondary or incidental to group health benefits – it is unlikely that a worksite clinic providing services (beyond workplace first aid for employees) that supplant benefits ordinarily provided under a group health plan would qualify as an excepted benefit.  How would the worksite clinic comply with the ACA’s coverage mandates – particularly regarding employees and family members not enrolled in the employer’s otherwise compliant group health plan?

In addition to litigation that can arise over group health plan noncompliance, the enforcement agencies – primarily the Department of Labor, Internal Revenue Service and Department of Health and Human Services, can impose significant penalties on employers for violating the myriad of compliance requirements applicable to group health plans.

The bottom line is that an employer maintaining a workplace clinic (or considering one) needs to understand the group health plan compliance risks and the general risks associated with doing so and take reasonable steps to mitigate those risks.