By: Darcy L. Hitesman
This article is the second article of three. The first article provides a general background regarding some of the issues associated with abortion-related benefits. This article focuses on a strategic approach for an employer to determine what is already available and what needs to be amended or adopted anew. It reviews a number of potential group health plans for purposes of travel expenses associated with an abortion and introduces the concept of a non-medical benefit program. The third article (expected mid-August) will address the “package” approach to abortion and abortion-related benefits, where all abortion services are provided through an all-inclusive package of services.
Keep in mind the fluidity of the environment. Shortly after distribution of the first article, the President issued an Executive Order, Congress has various bills being vetted, and states have taken steps to clarify and formalize their positions. Whatever an employer decides with respect to abortion, and abortion-related benefits, the changing environment needs monitoring. Clarification by the agencies (e.g., IRS, DOL) would also be helpful.
As with any decision regarding benefits, the employer sponsoring the plan through which the benefits are, or will be, provided should have a process for evaluating the change being considered, including whether it furthers an employer objective, whether the cost is worth it, and how it might actually be accomplished. Each of these steps provides the employer important information upon which to base its benefit decisions.
The employer sponsoring the plan through which the benefits are, or will be, provided should have an objective. With respect to abortion-related travel benefits, objectives may include the employer: (1) making a statement, (2) providing a benefit attentive to employees’ needs, (3) providing uniform benefits to employees residing in different states, (4) preserving the pre-Supreme Court decision benefits, and/or (5) other objectives.
A clear understanding of the objectives helps guide the employer’s decision making process.
Keep Costs in Mind
As with pursuing any objective (e.g., buying a house, purchasing a care, getting a college degree), the costs must be considered. Once having identified options for accomplishing the objectives, the employer needs to do the traditional cost benefit analysis. How much is the employer willing to pay to pursue its objectives? Does accomplishing the employer’s objectives justify the costs involved? When evaluating the costs, an employer needs to consider the impact on a particular plan or plans being changed or adopted. Adjusting one program may be cost prohibitive while another approach may be less expensive.
Inventory What Already Exists
Importance of Inventory. The goal is have a good, complete, and accurate inventory. Even for benefit plans where the employer will not or cannot make a change, the plans need to be identified and kept in mind. Why? There may be “ripple effects” of what the employer chooses to do elsewhere that impacts the other benefit plans the employer was not intending to change. For example, providing a travel expense benefit without subjecting it to the deductible of the group health plan may disqualify an employee from having contributions made to an HSA.
This inventory provides the employer with a list of potential vehicles through which to accomplish its objectives, a backdrop against which to estimate costs, and a map for compliance.
Most employers have benefit plans in place that either already provide some abortion-related benefits, or can be amended to provide abortion-related benefits. Such benefits include: (1) major medical coverage (insured or self-insured), employee assistance program (EAP), on-site clinic, (3) telemedicine, (4) integrated HRA, and (5) HDHP compatible with HSA. A logical first step is to review existing benefits, review the language of those benefits, and review the rules (e.g., Code, ERISA, state law mandated benefits, etc.) that apply to those benefits. This portion of the employer’s strategy consists of three basics steps: (1) identifying the existing plans, (2) carefully reviewing the plan language, both the obvious language and the hidden language, and (3) considering any special rules that apply to particular plans. Not surprising, many employers that sponsor plans often do not know the minutia of the plans. After all, a typical combination plan document/SPD for a self-insured medical plan often exceeds 100 pages!
A self-insured major medical HDHP excludes “travel or accommodations for health, whether or not recommended by a physician.” Can the employer allow reimbursement of abortion-related travel expenses through an EAP without disqualifying the individual from making HSA contributions? The EAP needs to be reviewed to confirm it does not provide substantial medical care and, therefore, is not considered disqualifying (i.e., impermissible) coverage. What does the EAP say regarding reimbursement of abortion-related travel expenses? Most EAPs would be silent on this benefit. The employer would need to amend the EAP to allow reimbursement. Would that amendment change the conclusion that the EAP does not provide substantial care? If the answer remains “no,” the EAP could be amended to allow reimbursement of abortion-related travel expenses and it would not disqualify a person covered under the HDHP from making HSA contributions. The reimbursements would not be taxable income to the employee to the extent of Section 213(d) of the Code (see discussion below). Any amounts beyond Section 213(d) of the Code would be taxable compensation to the employee.
Most EAPs are provided to all employees, a group that is larger than the group of employees covered under the employer-sponsored HDHP. To avoid having to absorb the extra cost, the employer could consider an integrated HRA that reimburses abortion-related travel expenses excluded under the HDHP provided those expenses are medical care under Section 213(d) of the Code. Reimbursement through an integrated HRA in this manner does not disqualify the employee covered under the HDHP from making HSA contributions. The travel expenses are excluded from coverage under the HDHP. They are not expenses being paid prior to the satisfaction of the deductible because the deductible does not apply. The expenses would never be payable under the HDHP. From an employer cost perspective, the employer limits the eligible population to those participating in the HDHP, and further to those who need the travel assistance to get abortion-related medical care.
Probably the most challenging part of the strategy is to evaluate the downsides of the potential ways to further the employer’s objectives. As with many employer provided benefits, particularly those provided on a tax-favored basis (i.e., no taxable compensation to the employee), there are rules that must be followed. Statutes and their regulations require benefits to be provided in particular ways for the recipient not to realize taxable income (e.g., written plan document, substantiation of claims, maximums, nondiscrimination testing). Sometimes, these rules interfere with an employer’s objectives. For example, the Code recognizes travel expenses related to obtaining medical care as a tax deductible expense under Section 213(d) of the Code. However, the regulations under Section 213(d) limit expenses for lodging to $50 per night for the individual seeking the medical care. An additional $50 per night is available for a companion when necessary for the individual seeking care. What does that mean? Amounts paid by the employer for lodging that exceed the per night limit are taxable income to the employee. There is still a very real benefit to the employee but it is less than what the employee may have been expecting because part of it is taxable income. And the cost to the employer is likely more than what the employer was expecting. For purposes of costs to the employer, the taxable portion would be subject to the same withholdings and taxes as other taxable compensation (e.g., FICA, FUTA, SUTA). In other words, the “cost” to the employer to provide the benefit is greater if the benefit is taxable to the employee.
Compliance (including Ripple Effects)
The plan through which the travel expense benefit would be provided is not the only benefit plan that must be considered. Other benefit plans sponsored by the employer, and which should be on the inventory described above, may be negatively impacted. For example, an employee is covered under a high deductible health plan (“HDHP”) sponsored by the employer and expects to make HSA contributions. As we know, eligibility for HSA contributions involves several elements: (1) the individual must be covered under an HDHP, and (2) the individual must not be covered under other non-HDHP coverage unless it is “permitted.” An employer wanting to provide a travel expense benefit for abortion-related medical care, needs to be very aware of the coverage it offers and the coverage under which the employees are covered. An employer that sponsors an HDHP must appreciate the general requirement that non-preventive care cannot be provided prior to the satisfaction of the deductible under the HDHP. Any travel expense benefit provided by the employer needs to coordinate with the HDHP and its rules. If travel expenses are a covered expense under the HDHP and available through other coverage prior to satisfaction of the HDHP deductible, it may disqualify the employee from making HSA contributions. Keep in mind, actually using the benefit is not the focal point. Being able to use the benefit is the disqualifying coverage. An employer could inadvertently provide a benefit that disqualifies the entire employee population covered under the HDHP by merely making the travel benefit available!
Consider a Non-Medical Option
To date, much of the attention has been on group health plan benefits; benefits the employer already has in place, could amend, or could adopt anew. But there is another type of benefit to consider – a non-medical benefit. By providing a more generic, farther-reaching benefit, ERISA would not apply and Code restrictions would not apply. For example, the employer could adopt a policy regarding reimbursement for out of state travel. It would not be limited to situations involving abortions or any other type of medical care. The policy would establish a maximum amount, employee eligibility, the terms of seeking reimbursement, how the program coordinates with FMLA and other leaves available through the employer, frequency of use, and other terms and conditions of the program much like a generic paid time off (“PTO”) policy requires. The reimbursement would be taxable income to the employee.
The downsides of this approach include having to “over” benefit to reach the employees with the abortion-related need. But the upsides include not having to deal with ERISA, COBRA, Code restrictions, and HDHP and HSA issues. The benefit would not be “medical care.”
NOTE: A vendor that provides services for health FSAs and HRAs is a likely candidate for this type of out of state travel program.
An employer has many things to consider when making a benefit change. A decision whether to add abortion-related travel expenses is no different. A thorough and thoughtful decision-making process exemplifies good business practice. It minimizes the likelihood of unintended consequences for the employer and the employees while allowing the employer to be responsive to the needs of its employees and fulfilling other employer objectives.