As employers prepare their workforces for issues related to COVID-19, they should also take steps to ensure that their benefit plans are prepared. The impact of the virus will put a financial and logistical strain on many employees, and they will likely look to employers for guidance on a number of issues related to benefit plans. This legal alert discusses the following important topics for employers to consider during this time:
• HIPAA-protected health information and data sharing on potential infections;
• Covering COVID-19 testing under medical plans;
• HSA-paired high deductible plans and preventive care and treatment, including just-issued relief under IRS Notice 2020-15;
• Employee access to benefit plan documents, including SPDs and SBCs;
• Health FSA approved purchases and health FSA coverage during unpaid leave;
• 401(k) plan investment information and hardship withdrawals; and
• Short term disability coverage for quarantined employees.
HIPAA-Protected Health Information and Data Sharing on Potential Infections
The privacy rules of the Health Insurance Portability and Accountability Act (HIPAA) require covered entities (for example, health plans) and their business associates to protect the privacy and security of protected health information (PHI)—even in the wake of growing concerns regarding COVID-19 transmission. Under the HIPAA privacy rules, covered entities are generally prohibited from disclosing PHI without a patient's authorization except in specific circumstances. Despite these restrictions, covered entities may share PHI with family members, friends or other individuals identified as being involved in the patient’s care if the patient so directs, or if it is in the best interest of the patient. In addition, covered entities may disclose PHI without patient authorization to (1) a public health authority, (2) a foreign government agency (at the direction of a public health authority) that is collaborating with the public health authority, or (3) persons at risk of contracting or spreading a disease or condition if authorized by law.
In most situations, any disclosure of PHI must be limited to the “minimum necessary” to accomplish the intended purpose (although disclosures to health care providers for treatment purposes do not need to meet the “minimum necessary” requirements). In the context of the coronavirus, the Department of Health and Human Services has stated that covered entities may rely on the Centers for Disease Control and Prevention (CDC)’s representations that disclosing requested PHI to the CDC regarding patients exposed to or confirmed to have COVID-19 meets the minimum necessary standard. Similar principles apply to making disclosures to other public health authorities. Employee health information in employment records outside of the health plan are not protected by HIPAA, but other laws may protect the confidentiality of this information.
Covering COVID-19 Treatment and Tests
One question on the minds of many employees is whether any testing or treatments for COVID-19 will be covered by their group health plan. Employees may have heard that certain states (such as Washington) have ordered state health insurers to waive certain costs and pre-authorization requirements for COVID-19. However, because most employer-sponsored medical plans are governed by ERISA, ERISA preemption prevents states from being able to force self-insured ERISA plans (which are not subject to state insurance laws) from waiving these types of costs. Some insurance companies (such as CIGNA and Aetna) have said that they will waive co-pays for COVID-19 tests, and to the extent that an employer’s plan is fully-insured, employees will be able to take advantages of these cost-sharing benefits. Employers with self-insured plans, on the other hand, should check with their third party administrator and see what their options are, as they may have the ability to waive certain costs. Employers with self-insured plans may want to consider whether to waive any cost-sharing requirements (including out-of-network surcharges) in order to ensure that employees get the testing and treatment they need. Note, however, that employers should ensure that they are aware of discrimination concerns if certain groups of employees are singled out to receive these cost-sharing waivers. There are also additional concerns when the employer offers a health savings account and high deductible health plan (as discussed below). Finally, communicating any cost-sharing requirements to employees is crucial – whether it’s through official plan documents (as discussed below) or through other employee communications.
HSA-Paired High Deductible Plans and Preventive Care
As states begin pressuring insurers to waive out-of-pocket costs for COVID-19 testing, trade groups, insurers and state insurance commissioners have raised concerns with the federal government about whether this sort of waiver is permitted under a high deductible health plan (HDHP) that is paired with a health savings account (HSA). In order for an individual to be eligible for a HSA, the individual cannot be covered by a non-high deductible health plan. That means that to be eligible for an HSA, a HDHP generally cannot waive cost sharing for covered benefits before participants meet their deductibles, unless the benefits are for “preventive care.” Otherwise, by waiving such costs, the HDHP risks the participant’s HSA eligibility.
Previous HSA guidance provides that while screening for certain diseases can be considered preventive care, subject to certain enumerated exceptions, preventive care does not extend to treatment for a disease that has already been diagnosed. However, in light of the emerging COVID-19 public health emergency, the IRS has issued guidance in Notice 2020-15 which states that “a health plan that otherwise satisfies the requirements to be a high deductible health plan…will not fail to be an HDHP….merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP.” This guidance gives high deductible health plans the flexibility to cover an individual’s COVID-19 testing and treatment prior to meeting the deductible.
Access to Benefit Plan Documents
In connection with concerns about COVID-19, employees may request their benefit plan documents and summary plan descriptions (SPDs), which include explanations of the plan rules and important financial information. Under ERISA, SPDs and other plan documents must be provided to employees within 30 days following the employee’s request.
If employees are working remotely or are otherwise unable to physically obtain their SPD from their plan administrators, SPDs can also be distributed through the mail or electronically. If distributed electronically, SPDs and other plan documents should be provided in compliance with the electronic disclosure rules.
Eligible employees and plan participants seeking treatment relating to COVID-19, or who have received a diagnosis, may request their plan’s Summary of Benefits and Coverage (SBC). The SBC provides simple information regarding a plan’s co-pays, deductibles, and other cost-sharing mechanisms across various types of medical services, such as in-patient treatment, emergency services, immunizations, and office visits. Having a copy of the SBC helps plan participants understand their cost-sharing responsibilities (and in particular the differences in costs between receiving in-network and out-of-network care). Under the Affordable Care Act, health insurers and employers sponsoring self-insured plans are required to provide an SBC to all eligible employees and plan participants within seven business days of any request.
Employers establishing contingency plans in response to COVID-19 should consider ways to ensure that employees working remotely who do not have access to company resources are granted access to documents they may need upon request. Employers should consider whether those documents can be transmitted through the mail or electronically and take steps to ensure that the appropriate measures are in place to comply with relevant disclosure rules.
Health Flexible Spending Accounts and COVID-19
Health Flexible Spending Accounts (FSAs), governed by Internal Revenue Code (Code) section 125, allow employees to set aside pre-tax payroll contributions to pay for certain medical and dependent care expenses. Because health FSA funds may be used to pay for a wide variety of health care products and services, employees may be tempted to use health FSA funds to stock up on medical supplies. However, only “qualified medical expenses” qualify for health FSA reimbursement. Qualified medical expenses are those that generally would be eligible for the medical and dental itemized deduction under Code section 213(d) and are covered by the participant’s health FSA. Moreover, an expense may be reimbursed only to the extent it has not otherwise been reimbursed or is reimbursable under any other health plan. Employers should make sure that employees are aware of the types of benefits and products are health FSA eligible, and which are not.
Another issue relating to health FSA benefits is how to handle funding the health FSA if an employee takes an extended period of unpaid sick leave. When an employee is on paid leave, the employee continues to make contributions to a health FSA through payroll deductions just as the employee would if continuing at work. But when an employee is on unpaid leave, the lack of payroll deduction contributions can impact an employee’s ability to receive health FSA coverage – and the employee will not be able to request reimbursements for amounts incurred while not contributing to the health FSA. If a covered employee takes unpaid leave under the Family and Medical Leave Act, the employee has three options to continue their health FSA coverage during unpaid leave: (1) pre-pay their health FSA contributions before going out on leave; (2) continue to make payments while they are out on unpaid leave (either contributing from personal funds on an after-tax basis or making contributions from any compensation they are paid during the leave, such as sick or vacation leave); or (3) agree in advance with the employer that the employee will make catch-up payments upon returning from leave.
401(k) Plan Investment Information and Hardship Withdrawals
With growing economic uncertainty due to market fluctuations, employers should consider communicating to plan participants about the resources their 401(k) plan may offer regarding investments. For example, the recordkeeper may maintain a website that provides information on diversification and asset allocation, or the plan may offer managed accounts. Now would also be a good time to consider whether participants need additional investment education (noting that employers generally will not want to directly provide investment advice) to assist them in making decisions about their retirement plan accounts.
Participants may be able to take a hardship withdrawal from their retirement plan accounts to cover specified medical expenses – such as costs associated with treating COVID-19 – if the withdrawal is necessary and the amount needed to cover the expense cannot be satisfied from other sources (such as health insurance). Generally, an employer may rely on a participant’s self-certification that a hardship distribution is necessary because of medical expenses related to COVID-19. Even so, participants should keep source documents, such as receipts and explanations of benefits.
Questions also may arise regarding whether participants can take hardship withdrawals for other expenses caused by COVID-19, such as funds to get through periods of unpaid leave or purchasing household sanitation and similar supplies. The government has not yet issued guidance that would expand the availability of hardship withdrawals, so for plans that apply the safe harbor rules, hardship withdrawals are limited to specified items such as medical expenses, amounts needed to prevent foreclosure or eviction, funeral expenses, and certain tuition payments. Plans that apply the general “immediate and heavy financial need” standard may have more flexibility depending on the circumstances presented.
Short Term Disability Coverage for Quarantined Employees
In circumstances where an employee may not have enough accrued paid leave to cover days lost from work due to mandatory quarantine or illness, the employee may request to use short term disability benefits expenses. While the ability to access short term disability benefits will depend on the plan’s definition of “disability,” simply choosing to stay home due a potential illness may not fit under most definitions of disability, absent a corresponding physical or mental impairment. Employers should keep in mind that if they change the definitions under the short-term disability plan, they will need to take a consistent approach for all employees. Employers might instead consider providing emergency paid leave, expanding work from home policies, or considering offering employee loans in order to ensure that employees are able to meet personal expenses during the quarantine.