Top 10 Employee Benefit Plan Considerations During The COVID-19 Pandemic
March 20, 2020
As employers continue to navigate the fluid COVID-19 environment, the following issues should receive consideration on an ongoing basis. Please keep in mind that the law is changing on a daily basis during the COVID-19 pandemic and, as a result, the guidance listed below is subject to change. McGrath North will strive to keep you informed of the latest news as guidance is issued by the relevant agencies.
- Testing and Treatment Costs for COVID-19.
Employers and the government alike are making strong efforts to ensure individuals have access to COVID-19 testing and treatment should it be needed. The Families First Coronavirus Response Act requires most employer group health plans to cover testing for the coronavirus (and provider visits relating to evaluation of the individual to determine whether testing is needed) with no cost sharing during this public health emergency. Additionally, the new law restricts any medical management requirements on coronavirus testing, such as prior authorization or utilization review.
The IRS has issued guidance allowing employers to waive all costs for health benefits associated with testing for and treatment of COVID-19 without violating the minimum deductible requirements for a high deductible health plan (“HDHP”). IRS Notice 2020-15 states that “all medical care services received and items purchased associated with testing for and treatment of COVID-19 that are provided by a health plan without a deductible… will be disregarded for purposes of determining the status of the plan as an HDHP.” One practical impact of this guidance it that employees may receive testing and treatment for COVID-19 at no cost, while still participating in a HDHP and contributing to a health savings account (“HSA”).
- HIPAA Privacy.
An oft-forgotten issue for employers is that their employer-sponsored group health plans are Covered Entities subject to the Health Insurance Portability and Accountability Act (“HIPAA”). As the plan sponsors, employers are responsible for ensuring their group health plans’ HIPAA compliance. The HIPAA privacy and security rules ensure the confidentiality of individuals’ Protected Health Information, including information relating to an individual’s health condition. As a result, employers must take caution in how they handle and request information about individuals’ potential positive COVID-19 status or other illnesses.
Setting aside state privacy laws and general employee confidentiality issues (including the Americans with Disabilities Act and FMLA), an employer must consider the source and recipients of employee health information before using and disclosing it. If an employer learns of an employee’s health status or potential positive COVID-19 status through the group health plan, the information is protected by HIPAA and the information cannot be shared unless a HIPAA exception applies, or a HIPAA-compliant individual authorization has been obtained. Communications between an employee and an employer (as employer, not as plan sponsor) are not governed by HIPAA. However, since Human Resources personnel commonly administer both the group health plan and general employment issues, Human Resources departments should use caution in receiving, using, and disclosing information about COVID-19 status or other illnesses. As a general rule, the most prudent manner for handling employee health information is to treat it as confidential and apply HIPAA protections to the information.
Please note that employers may disclose employee health information to public health authorities (such as the Centers for Disease Control and Prevention, or “CDC,” and state and local health departments) to ensure the health and safety of the public, or to individuals at high risk. HIPAA includes an exception to the privacy rule whereby a group health plan may disclose employee health information to public health officials authorized by law to collect or receive such information for the purpose of preventing or controlling disease. HIPAA also includes an exception for disclosures of employee health information to persons at risk of contracting or spreading a disease or condition if other applicable law authorized the group health plan to notify such individuals as necessary to prevent or control the spread of the disease or otherwise to carry out public health interventions.
- Health Plan Eligibility.
Many employees are working remotely, on paid leave, or on unpaid leave due to COVID-19 restrictions. Additionally, some employees have experienced either an increase or decrease in hours worked, which could lead to changes in employment status (part-time to full-time or vice versa). As a result, employers must carefully monitor each employee’s leave time and analyze whether each employee is still eligible to participate in the employer’s group health plan. Keep in mind that if an individual loses eligibility for coverage, he or she may be entitled to continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).
The eligibility and the Affordable Care Act (“ACA”) provisions in the group health plan documents must be reviewed prior to making any determinations about eligibility status. The plan document will contain information on leaves of absences and termination of coverage. It should also contain the basic rules governing changes in employment status. Some employers maintain an ACA eligibility policy, which provides more detail on the measurement and stability periods used to determine full-time and part-time status under the ACA, the impact of changes in employment status and reduction in hours on ACA eligibility, FMLA and other leave, and rehires. These policies vary from employer to employer.
The Families First Coronavirus Response Act addresses Family and Medical Leave Act (“FMLA”) leave and paid sick leave in certain circumstances during the pandemic, but it does not contain any provisions relating to the impact on benefits continuation. Therefore, current FMLA requirements should apply to FMLA leave under the Families First Coronavirus Response Act and the terms of the group health plan document should apply to the paid sick leave until further guidance is released. Employers with self-funded group health plans seeking to waive eligibility provisions during the pandemic should consult their stop loss carriers and legal counsel prior to implementation to ensure such waiver is permissible, and should apply such waivers uniformly.
- Dependent Care FSAs.
Day care centers across the country are being shuttered due to COVID-19. As a result, employees have started requesting a mid-year change to their Dependent Care FSA contributions. Generally, elections for Dependent Care FSA contributions are irrevocable for the plan year except for upon the occurrence of certain events. One event that could allow a change in contributions mid-year is a significant change in child care costs, as long as the modification to contributions coincides with the change in cost. For example, if a daycare closes and an employee experiences a significant decrease in child care costs, the employee could only modify contributions mid-year to decrease contributions. Additionally, the applicable plan document must be reviewed in order to ensure that a mid-year change is permissible. Generally, plan documents must specifically allow for mid-year election modifications due to significant cost changes.
Other employees have expressed concern about access to Dependent Care FSA funds during an extended leave of absence. Dependent care expenses are eligible for reimbursement under the Dependent Care FSA only if the expenses are employment-related (enable the employee or spouse to be gainfully employed). Extended leaves could impact an employee’s eligibility to reimburse dependent care expenses.
- Collecting Genetic Information.
The Genetic Information Nondiscrimination Act (“GINA”) could come into play for employers as they navigate the development of policies for employees with ill family members during the pandemic. GINA prohibits the use of genetic information in a discriminatory manner. Employers should proceed with caution before asking employees about their family members’ diseases or disorders because, under GINA, a family member’s COVID-19 status could constitute genetic information. If an employer inadvertently discovers an employee’s family member has COVID-19, or an employee volunteers the information, GINA generally is not implicated. However, employers should take caution in asking follow-up questions and acquiring further genetic information not voluntarily or inadvertently disclosed.
Employers and employees are encouraged to utilize telehealth during this public health emergency. The Trump Administration and governmental agencies have shown a conscious effort to encourage the use of Telemedicine during the pandemic. The Families First Coronavirus Response Act, coupled with an emergency declaration and modification to telehealth policies, expanded Medicare coverage to include telehealth services due to the COVID-19 pandemic. Before COVID-19, these services were not covered by Medicare. Additionally, the Department of Health and Human Services has eased enforcement and compliance requirements under HIPAA for the provision of Telehealth services to patients. The department will exercise its enforcement discretion and will not impose penalties should healthcare providers use methods for telehealth that may not meet the regulatory requirements under HIPAA.
Some employers have moved to cover the cost of telehealth services for employees seeking COVID-19 treatment and testing, which implicates HDHP and HSA eligibility concerns. Although the IRS Notice 2020-15 (discussed above) does not expressly list telehealth as a type of “medical care service received and associated with treatment for COVID-19,” the Notice does not specifically exclude Telehealth either (as it does for vaccinations). The intent of the Notice was to provide flexibility to HDHPs to provide health benefits for testing and treatment of COVID-19. Physicians can conduct patient interviews about symptoms for COVID-19 and inform patients of treatment methods for COVID-19 via Telemedicine services. Therefore, although the IRS has not issued express guidance on the impact of telehealth cost waivers on HDHPs and HSAs, many employers and vendors are looking to waive coverage for telehealth services associated with treatment and testing for COVID-19.
- 401(k) Plan Safe Harbor Contributions.
COVID-19 is likely to have a significant economic impact on many employers. As a result, some employers may turn to reducing employer safe harbor contributions to their 401(k) plans. The IRS regulations governing 401(k) safe harbor plans state that a safe harbor plan may be amended during the current year to reduce or suspend employer safe harbor contributions if the employer is operating under an economic loss for the year. If an employer chooses to do so, a supplemental notice regarding the reduction or suspension must be issued to participants, and the reduction or suspension of contributions cannot occur until at least thirty (30) days after receipt of the notice. Other requirements also apply, including plan amendments for application of certain nondiscrimination tests, allocation of previously promised contributions, and allowing participants to change contribution elections prior to implementation of the reduction or suspension.
- 401(k) Plan Hardship Withdrawals.
Those employees that are put on reduced work schedules or unpaid leaves of absences due to COVID-19 may experience financial difficulty and turn to their 401(k) account for extra funds. As of the date of this article, the IRS has not released any guidance on special rules relating to 401(k) hardship withdrawals. As a result, the current hardship withdrawal rules remain in effect. Although the IRS has recently added federally-declared disasters as a safe-harbor for hardship withdrawals, it is unlikely that the current national public health emergency qualifies as a federally-declared disaster. However, it is possible that the IRS or the Trump Administration may release guidance in the future regarding temporary relief for hardship withdrawals due to COVID-19. Employers are encouraged to monitor the latest guidance on this issue.
- Fiduciary Responsibility In An Uncertain Market.
The U.S. economy has been and likely will continue to experience negative impacts due to COVID-19. Fiduciaries to retirement plans may be fielding numerous calls from plan participants relating to the status of their 401(k) account and the investment options available to them. Plan administrators and retirement plan committees should continue to comply with the fiduciary duties enumerated under the Employee Retirement Income Security Act (“ERISA”), which include the duty to act prudently, diversify assets, comply with the terms of the plan documents, and monitor plan service providers. Fiduciaries should be careful not to provide investment advice to participants as they call in, and to adhere to the terms of the plan despite sympathetic requests for certain withdrawals, loans, or other distributions that may not comply with the plan or IRS rules.
- Plan Document and Vendor Contract Review.
As always, the most important task in determining benefit plan compliance during the COVID-19 pandemic is to perform a review of the plan documents and ensure that all modifications and changes to employment policies coordinate and operate in accordance with the terms of the plan documents. Additionally, administrative services agreements with benefit plan vendors should be reviewed for clauses that exclude performance under the agreements under extreme circumstances (e.g., force majeure clauses), and for provisions relating to requirements for business continuity and disaster recovery plans.
Please reach out to McGrath North’s COVID-19 Response Team for additional information and guidance.
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