The explosive Supreme Court decision in Dobbs v. Jackson Women’s Health, which overturned federal constitutional protections for abortion, has put employers at the forefront in deciding whether and how employees receive abortion services under group health plans. This article summarizes some of the legal and policy issues that employers should consider when developing such arrangements.

Employers are considering a host of possible responses to the Dobbs decision, ranging from doing nothing, to incorporating medical and travel benefits into their existing plans, to offering abortion services wholly outside the confines of the group health plan. Most of these options present complex legal considerations, most prominently those arising under the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code, and state civil and criminal laws aimed at restricting abortion and the conduct of those assisting others in obtaining an abortion.

For employers, the first step may be the hardest and depends largely on non-legal issues. Employers must determine how the Dobbs decision impacts their various constituencies (employees, customers, shareholders) and how to respond. Geography may play a role. Policy decisions by labor market competitors may play a role. And your population of employees and prospective employees may play a role because your decision could impact recruitment and employee retention. Employer decisions can also be influenced by the level of employee engagement regarding abortion coverage, the associated costs of offering additional benefits, and the potential legal risk involved.

From a legal perspective, an employer’s decision on whether to increase access to abortion services in one way or another will likely depend in some part on whether the employer’s group health plan is self-insured or fully insured. Because some self-insured plans are self-funded but may be administered by a health insurance company, these labels can be confusing, but it is critically important to understand the distinction.

If a plan is self-insured, the employer pays employees’ medical expenses from its general assets or from a fund set aside for that purpose, rather than relying on an insurance company to pay those expenses. (Some self-insured plans are covered by stop-loss policies, but they remain self-insured.)

If a plan is fully insured, the employer pays premiums to a third-party insurance company that assumes the risk for paying the benefits.

In the context of covering abortion benefits, the difference between these two types of plans is significant. While both types of plans are usually governed by ERISA, and ERISA preempts most state laws that “relate to” the plan, ERISA does not preempt state insurance laws that govern fully insured plans. As a result, fully insured plans covering employees in a state where abortion is restricted will have significantly fewer options for covering abortion services or travel benefits.

Self-Insured Plans Governed by ERISA

Employers that sponsor self-insured plans that are subject to ERISA have considerable flexibility in adding abortion and/or travel benefits that would allow an employee to have an abortion in a state where it is legal. For example, self-insured employers can choose to cover abortion services for non-residents of the state in which the services are performed at the same cost as the services are provided to residents. Travel expenses may also be covered by the plan as a type of medical expense under Section 213(d) of the Internal Revenue Code. Such expenses include (1) reasonable transportation expenses (no cap) and (2) lodging expenses (capped at $50/night) necessary to obtain medical care that is not available where the patient lives. Given this low $50/night cap for lodging, employers need to consider whether the employer or the employee covers additional lodging expenses and, if covered by the employer, whether the employer will “gross up” the employee’s cash wages to cover the resulting additional tax owed by the employee. Employers also need to consider the cost of meals.

Employers that make any such changes to their plans will need to update their plan documents and summary plan descriptions accordingly and communicate those changes to employees. The devil is in the details — for example, as discussed below, employers should consider whether the expansion in benefits is limited to “abortion coverage” or applies more broadly to “medical care not available in the state of residence,” as the language used may impact the applicability of state laws aimed at restricting anyone from helping another person obtain abortion services. Employers should work closely with their benefits counsel to properly implement any plan changes.

Sponsors of self-insured plans have flexibility to offer abortion-related benefits, but they must continue to monitor developing state and federal laws related to abortion. Employers considering plan changes should understand that ERISA preemption does not completely shield them from legal risk. For instance, state laws currently on the books that criminalize or prohibit assisting another person in obtaining an abortion in violation of state law may not be preempted by ERISA; these laws could conceivably be applied to hinder employers’ efforts to assist employees in leaving the state to obtain an abortion. The application of those laws to employers and benefit plans is questionable for constitutional and other legal reasons, in the view of most legal scholars. But the limits of these state laws will very likely be tested in the courts. Employers will need to consider carefully whether they are willing to become the test case, given the time and financial commitment that this may involve, as well as potential media and public relations challenges.

Options Outside the Group Health Plan

As discussed above, employers with fully insured plans have less flexibility to add abortion or travel benefits to an insurance policy governed by state law in a state where abortion is restricted. Accordingly, those employers may want to consider arrangements outside the group health plan. An employer could put in place an employer-funded program that would reimburse, on a taxable basis, travel benefits provided to employees who need them, and employers may want to consider making a payment to “gross up” the employees’ cash wages to cover the resulting additional tax owed by the employee. Employers might also explore other types of tax-favored benefits such as a health reimbursement arrangement that would reimburse medical and travel expenses. However, employers should carefully review such options with benefits counsel because such arrangements are heavily regulated under several complex federal laws, including ERISA, the Affordable Care Act, and the federal Health Insurance Portability and Accountability Act of 1995 (HIPAA).

Finally, in this uncertain legal environment, employers making changes to their plans to add abortion or travel benefits should review their corporate and fiduciary insurance policies to better understand their insurance coverage should they face a legal challenge.