As of October 2017, Health Care Still Uncertain.
We already know the state of health care in the United States continues to whipsaw, as an October 25th ruling demonstrates: a federal district court confirmed that the Trump Administration need not fund the Affordable Care Act (“ACA”) subsidies that offset insurance copays and deductibles for some ACA shoppers. This outcome came over the entreaties of 19 state attorney generals who brought the request for an emergency injunction to compel the Trump Administration to reverse its position of choosing not to pay the October and future monthly cost-sharing reductions.
Health Care Costs Still on the Rise.
What remains certain is that premiums for general health insurance and ACA marketplace plans continue to rise. Accordingly, in order to help control health care costs and encourage wellness, employers might find it appealing to offer on-site health clinics for their employees.
On-Site Clinic Considerations.
Before an employer actually commits to an on-site clinic, however, several interrelated legal and operational issues should be evaluated:
• Whether the on-site clinic will be a group health plan covered under the Employee Retirement Income Security Act (“ERISA”) and thus will be subject to:
a. written disclosure requirements;
b. the Health Insurance Portability and Accountability Act’s (“HIPAA’s”) privacy and security regulations;
i. if HIPAA does not apply, consider state law privacy and security requirements;
c. non-discrimination issues under the Internal Revenue Code (where benefits that impermissibly favor highly-compensated individuals trigger adverse income tax consequences for those individuals and more burdensome tax reporting requirements); and
d. health plan continuation coverage rights for employees under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).
• Whether the employer sponsoring the on-site clinic can properly navigate issues if it also wants to offer employees high deductible health plans (“HDHPs”) paired with health savings accounts (“HSAs”).
Tax Benefits of HSAs.
For an employee, HSA benefits include pre-tax paycheck deductions, tax-free earnings on money in the HSA, and tax-free withdrawals for qualifying health expenses (and, after age 65, the employee can withdraw from an HSA for any purpose). According to the Internal Revenue Service guidance in Notice 2008-59 (the “IRS Notice”), however, having access to an on-site health clinic that provides significant medical benefits for free or at a reduced cost may prevent an employee from making HSA contributions. Indeed, such contributions – if improper – would be subject to income and excise taxes.
Permissible Benefits an On-Site Health Clinic Can Offer, if the Employer Offers HSAs.
An on-site health clinic may offer the following permissible medical benefits at no cost, without affecting HSA eligibility: “permitted” coverage (such as vision and dental care), “preventive care” (such as shots and screenings), and “insignificant” medical benefits (collectively, permissible benefits). The IRS Notice explains in an example that “insignificant” medical benefits include:
• physicals and immunizations;
• injecting antigens provided by employees (e.g., performing allergy injections);
• a variety of aspirin and other nonprescription pain relievers; and
• treatment of injuries caused by accidents at an employer’s location.
The IRS Notice concludes that an on-site clinic providing the above limited services would not interfere with employees’ HSA eligibility because the clinic would not be providing “significant benefits in the nature of medical care” other than the permitted coverage and preventive care.
“Significant Medical Benefits” Provided at Free or Reduced Cost will Affect HSA Eligibility.
If an on-site clinic provides “significant benefits” for free or at reduced-cost (i.e., below fair market value (“FMV”)), an employee may lose eligibility for an HSA. Indeed, the IRS Notice indicated that an employee who has mere access to (rather than one who actually uses) such an on-site clinic will not be an HSA-eligible individual. The IRS Notice concluded that an employer who permits its employees to receive care at its on-site facilities for all of their medical needs, provides medical care at no charge to uninsured employees, and waives all deductibles and co-payments for employees who have health insurance would be providing “significant benefits in the nature of medical service.”
As already stated, because of the rules for HSAs, an on-site clinic can provide only permissible benefits at no cost. Although there is no IRS guidance on whether an otherwise HSA-eligible employee may simply pay FMV, the IRS Notice suggests by negative implication that an employee might be able to preserve HSA eligibility by paying for the significant benefits that the on-site clinic provides.
TRICARE/Medicare/Medicaid Prevent HSA-Eligibility.
For reasons not relevant here, employees who receive TRICARE (the health benefits for active/retired members of the uniformed services) or Medicare/Medicaid (government-provided medical assistance for the aged and low income) cannot fund an HSA. Thus, an employer offering a paired HDHP with an HSA feature must be sure to flag TRICARE/Medicare/Medicaid employees as ineligible at the point of enrollment into the HSA. TRICARE/Medicare/Medicaid employees cannot have HSAs; it seems they may have HDHPs, however, if they are willing to bear costs out-of-pocket, rather than from an HSA. It is likely these employees will have to have health plan alternatives other than HDHPs.
Success in Having Both an On-Site Health Clinic and HSAs?
In order to successfully offer an on-site health clinic, with a HDHP/HSA in place, an employer will need to be able to:
• drill down on all of the medical benefits provided by the on-site clinic;
• delineate the clinic’s permissible benefits;
• delineate the clinic’s significant medical benefits;
• identify the procedure for calculating FMV of a significant benefit, if there are any;
• vet out which employees need to pay for any significant benefits;
• identify what the deductible is per employee;
• keep track of the employee payments towards annual deductible limits; and
• vet out TRICARE/Medicare/Medicaid employees.