employee discounts and other unique employee benefits issues for healthcare providors
TRANSCRIPT
Employee Discounts and Other Unique Employee Benefits Issues for
Healthcare ProvidersBret Busacker
(208) [email protected]
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Important information
This presentation is similar to any other seminar designed to provide general information on pertinent legal topics. The statements made and any materials distributed as part of this presentation are provided for educational purposes only. They do not constitute legal advice nor do they necessarily reflect the views of Holland & Hart LLP or any of its attorneys other than the speakers. This presentation is not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.
All Presentations and Other Materials © Holland & Hart LLP 2015
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Big Picture
• We will discuss the various laws that regulate employee discounts and other unique employee benefits programs established by healthcare providers.
• The focus of our discussion will consider compliance with the following major laws that regulate benefits:– Internal Revenue Code (Code)– Employee Retirement Income Security Act (ERISA)– Affordable Care Act (ACA)– Consolidated Omnibus Budget Reconciliation Act (COBRA)– Health Insurance Portability and Accountability Act (HIPAA)
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General Taxation of Benefits
• Absent a special tax rule, the value of the benefits provided by an employer to an employee is taxable to an employee just like any other compensation
• When an employer offers a benefit of any kind to an employee, the employer must identify the specific exemption/exclusion from this general tax rule
• Unlike retirement plans, which only defer the timing of tax on compensation, the Code generally allows an employee to avoid tax entirely on the value of benefits provided so long as an exception/exclusion applies
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Internal Revenue Code
• If an employer provides a benefit that it intends to be exempt from taxation under an applicable Code provision, the employer must satisfy the specific requirements required by the Code to achieve the exemption.
• Examples:– Employee discount programs have limits on the amount of
the permissible discount as well broad-based eligibility rules– Self-insured group health plans must satisfy special non-
discrimination rules– Health FSAs and cafeteria plans must comply with specific
plan documentation requirements, discrimination rules and benefits limitations
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Employee Discount Programs Under the Code
• Employee Discount Programs - The benefits provided under a qualified employee discount program may be excluded from the employee’s income if:– Discount does not exceed 20% of the fee
regularly charged for services to customers – Discount does not exceed the profit margin on
goods– Discount is available to all employees
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Group Health Plans Under the Code
• Accident and Health Plans - Amounts reimbursed by an employer for medical expenses incurred by an employee, spouse and his/her dependents may be excluded from the income of the employee if:– At least 70% of the employer’s employees benefit under the
group health plan, or if not, at least 70% of the employer’s employees are covered by the group health plan and at least 80% of those employees actually benefit under the group health plan
• These nondiscrimination requirements currently only apply to self-insured plans, but most employer-provided medical discount programs will be considered self-insured
• The ACA extended the group health plan non-discrimination rules to insured health plans, but regulators have yet to publish guidance on how they apply
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Benefits Laws - Application to Different Employers
• Benefits laws (other than the Code) apply differently to different employers:– ERISA applies to private sector, but not
governmental plans and non-electing church plans– COBRA applies to private sector and governmental
employers, but not church plans– COBRA does not apply to any employer with fewer
than 20 employees and Idaho does not have a mini-COBRA statute
– HIPAA generally applies to private sector, governmental, and church plans
– ACA applies to all employers
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Group Health Plans are Broadly Defined
• Regardless of the tax treatment of an employer-provided medical benefit, the employer must separately determine whether such benefit is a group health plan under applicable benefits laws – COBRA generally defines a group health plan very broadly to include
any plan that provides medical benefits to employees– ERISA generally defines a group health plan as a plan that provides
medical care to employees or their dependents that is a “welfare benefit plan” within the meaning of ERISA (we will discuss more below)
– HIPAA generally defines a group health plan as any plan that provides medical benefits to employees or their dependents that is not a HIPAA excepted benefit (we will discuss more below)
– ACA generally defines a group health plan to track with the ERISA group health plan definition, but has a similar carve-out for HIPAA excepted benefits
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Common ERISA Exemptions
• Because of these broad definitions, an employer-provided medical benefit should typically be treated as a group health plan unless an exemption applies.– Voluntary benefit plans in which the employer serves solely the
function of a payroll intermediary may be exempt from ERISA (e.g., voluntary income replacement benefits)
– If the employer is not required to maintain an administrative scheme to provide a medical benefit, the benefit may be exempt from ERISA (e.g., a one-time or irregular medical benefit provided to employees)
– If the employee receives the same “benefit” as benefits generally available to the public, the arrangement may be exempt from ERISA (i.e., no discount and no administrative scheme)
– If the only benefits provided to employees are goods, the arrangement may be exempt from ERISA, but if medical goods and services are provided together, the arrangement is likely subject to ERISA
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HIPAA EXCEPTED BENEFITS
• The following types of arrangements are HIPAA excepted benefits:– Limited scope dental and vision– Health FSAs that are integrated with other group
health coverage (i.e., FSA eligible employees are also eligible for other employer group coverage) and the employer contribution does not exceed $500
– Other limited benefits such as accident coverage, income replacement coverage, worker’s compensation, on-site medical clinics, etc.
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Summary Considerations
• Almost all employer-provided medical benefits must comply with COBRA
• Almost all employer-provided medical benefits that require an administrative scheme will be a group health plan under ERISA (to the extent the employer is subject to ERISA)
• If an employer-provided medical benefit is subject to ERISA, the arrangement must:– Have a written plan document– Comply with the ERISA SPD requirements– Comply with the Form 5500 requirement – Comply with the summary annual report requirement– Comply with the ERISA claims procedure requirements
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Summary Considerations
• Any employer-provided medical benefit that is not a HIPAA excepted benefit must generally comply with – The HIPAA nondiscrimination and special enrollment
requirements– ACA preventative care and annual and lifetime limit
requirements, the minimum essential coverage reporting requirements, and the summary of benefits and coverage disclosure requirements
• If an employer-provided medical benefit is not a HIPAA excepted benefit, then the arrangement may disqualify an employee from tax credits or premium assistance on a health insurance exchange, if the employee elects to participate in the employer-provided benefit
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Key Take Away
Employers who provide their employees with medical benefits in
lieu of, or in addition to, general broad-based employer health coverage should confirm that such other or additional coverage constitutes a
HIPAA excepted benefit and such other or additional coverage complies with ERISA, COBRA and HIPAA Privacy and
Security
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Commonly Misunderstood Arrangements
• The following types of arrangements are often offered by healthcare employers, but are often not structured to comply with applicable tax and benefits rules:– Employer-paid service cards/vouchers– Employer provided/discounted medical
care– On-site medical clinics– EAP programs
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Discount Cards - Issue
Employer provides pre-paid vouchers/cards to employees that allow the employees to receive medical benefits from the employer up to the value of the voucher/card• The IRS generally treats any type of pre-paid
card/voucher as a taxable benefit• Whether or not such benefit is treated as
taxable, the benefit may be a group health benefit under benefits laws if the card/voucher may only be used to obtain medical care
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Discount Card - Solution
• It is possible to structure a card/voucher benefit to be excluded from the employee’s income and to be a HIPAA excepted benefit
• The arrangement could be structured as a health FSA if:– The value of the employer provided benefit does not exceed $500
annually– The benefit is only available to employees who are also eligible for
the employer’s broad-based group health coverage
• The arrangement would still be subject to ERISA, COBRA, and HIPAA privacy and security, but these requirements could be addressed by updating existing plan documents, COBRA notices, and HIPAA privacy and security notices
• The arrangement would be exempt from the ACA, including the preventative care and annual/lifetime limit requirements
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Free or Discounted Medical Services - Issues
• Employer provides free or discounted medical services to employees– Since this benefit is not provided through
insurance, the plan will be treated as a self-insured medical plan and the Code’s non-discrimination rules (summarized above) will apply
– Regardless of the tax treatment of the benefit, this benefit will be subject to ERISA, COBRA, HIPAA, and the ACA unless an exception applies
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Free or Discounted Medical Services - Solution
• A one-time benefit to a single individual may be exempt from ERISA and other benefits laws to the extent an administrative scheme is not established
• If the arrangement does not expressly earmark a cash payment to be used for medical care or insurance premiums, the arrangement may be exempt from ERISA and other benefit laws, but this would make the arrangement taxable to the employee
• To the extent ERISA applies, it may be possible to integrate the benefit with the employer’s other group health plan documents, SPDs, benefits notices, HIPAA privacy and security notices, COBRA notices, etc.
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Free or Discounted Medical Services - Solution
• If the employer’s other group health plan is an insured plan, employer may need to create specialized documents to comply with applicable ERISA, COBRA, and HIPAA requirements
• All FSA and HRA reimbursements should be made only after the write-off or discount has been made with respect to the benefit (i.e., no double dipping)
• Employer should discuss the program with the plan’s insurance provider
• Employer should confirm that this arrangement will not disqualify an employee’s HSA due to the fact that the arrangement may cause the employer’s group health plan to not satisfy the high deductible health plan requirements
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Free or Discounted Medical Services - Solution
• To the extent the discount or the value of a write-off does not exceed $500 annually, it may be possible to treat the benefit as an employer FSA credit (similar to the strategy discussed under Discount Card – Solution (above))
• To the extent the benefit cannot be characterized as an FSA credit, the arrangement may be structured as an HRA
• If the arrangement is structured as an HRA, the arrangement may only be offered to employees actually enrolled in the employer’s other broad-based group health plan
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Free or Discounted Medical Services - Solution
• If the employer wants to provide the benefit to all employees, including employees who are not enrolled in the employer’s group health plan (i.e., part-time employees), the arrangement will likely not qualify as a HIPAA excepted benefit and must independently comply with the ACA, COBRA, HIPAA and ERISA
• If the benefit is not a HIPAA excepted benefit, any employee who elects to participate in this arrangement would be barred from obtaining tax credits and premium assistance on a health insurance exchange
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On-Site Medical Clinics -Issue
• The value of benefits provided through an on-site medical clinic may generally be excluded from an employee’s income
• However, the on-site medical clinic will be subject to the Code’s nondiscrimination rules (discussed above)
• If an on-site medical clinic provides more than first-aid or other de minimis medical benefits, then the arrangement is subject to ERISA and COBRA
• On site medical clinics are a HIPAA excepted benefit and exempt from HIPAA (special enrollment and non-discrimination) and ACA (preventative care, lifetime and annual limit requirements, summary of benefits and coverage requirements, transitional reinsurance fee, PCORI fee, etc.)
• On-site medical clinics may be exempt from HIPAA privacy and security, but this is not a well-resolved rule
• On site medical clinics that provide more than de minims health care will cause a health plan to fail to be treated as a high-deductible health plan and will disqualify employees’ HSAs
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On-Site Medical Clinics -Solution
• Review plan documents and confirm that all ERISA required documents have been provided to eligible employees
• Evaluate COBRA notices and confirm that COBRA notices include information about the on-site clinic
• Review HIPAA privacy notices and policies and ensure proper privacy compliance measures are observed
• Consider the impact of the clinic on employees’ HSA if the employer sponsors a high-deductible health plan
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Employee Assistance Plan - Issues
• The value of benefits provided through an employee assistance plan (EAP) may generally be excluded from an employee’s income
• EAPs must comply with the Code’s non-discrimination requirements (discussed above)
• EAPs that are solely a referral service are not subject to ERISA or COBRA
• EAPs that provide actual services through staff doctors and counselors are subject to ERISA and COBRA
• EAPs may be a HIPAA excepted benefit if the EAP:– Does not provide significant medical care – Does not require the employee to participate in the employer’s group
health plan in order to benefit under the EAP– Is paid for by the employer (i.e., not subsidized by the group health
plan or paid for by employees)
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Employee Assistance Plan - Solution
• Review the degree of medical services provided through the EAP– If more than first aid or de minimis medical benefits are
provided, ensure that the plan complies with ERISA and COBRA requirements
– If the plan is structured to provide significant health benefits, the plan must satisfy the requirements of HIPAA and the ACA, including preventative care, no annual and lifetime limit requirements, the summary of benefits and coverage requirements, etc.
• Ensure the EAP complies with HIPAA privacy and security, which means entering into a business associate agreement with any service provider to the EAP
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Significance
• Failure to comply with ERISA plan document requirements and COBRA notice requirements can result in significant penalties to employers
• Failure to comply with ERISA claims procedure requirements can result in a court reviewing a claims decision without the level of deference generally provided to employers under ERISA
• Failure to comply with the Code’s non-discrimination rules for a self-insured group health plan may cause the benefits provided under the plan to be treated as taxable to the employee
• Failure to comply with the ACA preventative care and annual/lifetime limit requirements can result in significant penalties to employers
• Employers are required to self-report violations of COBRA, HIPAA, and the ACA
• Failure to report these failures can result in additional penalties being imposed on the employer
