Q: Can my high-deductible health plan offer free coverage for COVID-19 expenses (before the deductible is met) and still remain health savings account (HSA) eligible?

A: Yes, the IRS has issued guidance in Notice 2020-15 to clarify that coverage of COVID-19 expenses prior to satisfaction of the deductible will not render an otherwise eligible person ineligible for purposes of making HSA contributions.

Can my high deductible health plan offer free telemedicine services (before the deductible is met) and still remain health savings account eligible?

Yes, if the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is enacted. As explained further below, the CARES Act includes a provision that would ensure that those who receive free telemedicine services are still eligible to contribute to a health savings account.

If this provision is not enacted, current guidance (including Notice 2020-15) would appear to provide that cost-free coverage of telemedicine services prior to satisfaction of a deductible will not impact health savings account eligibility so long as the telemedicine services are limited to COVID-19 diagnosis or treatment. If telemedicine services are offered more broadly for all medical services on a cost-free basis prior to satisfaction of a deductible, this may render an employee ineligible to contribute to a health savings account.

Q: Is our health plan required to provide free coverage of services related to COVID-19 diagnosis and treatment?

A: Yes, as it relates to diagnostic testing. On March 14, the House passed H.R. 6201, the Families First Coronavirus Response Act (the Families First Act). The Senate approved that legislation, and President Donald Trump signed it on March 18. Pursuant to Section 6001 of the Families First Act, all group health plans and health insurance issuers offering group or individual health insurance coverage, including grandfathered health plans, must provide coverage for COVID-19 diagnostic testing, including related physician/facility costs, with no cost sharing or prior authorization requirements. This coverage requirement would apply during an “Emergency Period,” as defined under Section 1135(g)(1)(B) of the Social Security Act (“the period during which, there exists … a public health emergency declared by the Secretary pursuant to section 319 of the Public Health Service Act”). The Families First Act sunsets on Dec. 31, 2020. Note that the Families First Act does not impose similar coverage requirements for COVID-19 treatment. Similar requirements appear in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which is discussed in more detail below.

Q: Does the Families First Coronavirus Response Act (Families First Act) include any other employee benefits-related provisions?

A: The Families First Act includes additional emergency paid sick leave and Family and Medical Leave Act provisions that impact employers with fewer than 500 employees.

Q: How would the proposed Coronavirus Aid, Relief, and Economic Security Act (CARES Act) impact employee benefit programs?

A: Senate Majority Leader Mitch McConnell (R-Ky.) introduced the CARES Act on March 19. This trillion-dollar stimulus plan has far-reaching impacts on qualified retirement plans and health and welfare plans.

Qualified Retirement Plans: With respect to qualified retirement plans, the CARES Act would (if enacted):

• Provide for a special “coronavirus-related distribution” that is exempt from the 10% early withdrawal penalty, can be repaid over a three-year period without regard to the typical plan contribution limits, and is includable in taxable income over a three-year period to the extent not repaid. Such distributions generally may not exceed $100,000 in total for an individual. A “coronavirus-related distribution” means a distribution made after passage of the legislation and before December 31, 2020 to an individual:

1. who is diagnosed with COVID-19,
2. whose spouse or dependent is diagnosed with COVID-19, or
3. who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.

• Provide certain loan relief for a “qualified individual,” defined to include those noted in 1-3 above including:

1. providing a temporary increase on the plan loan limit (generally, up to a maximum of $100,000) for loans made during the 180-day period following enactment of the legislation and
2. delaying for an additional year (or, if later, until 180 days following enactment of the legislation) any plan loan repayment that comes due during the period beginning on enactment of the legislation and ending on December 31, 2020.

Under the CARES Act, calendar year plans would generally have until the end of 2020 to adopt a retroactive amendment to reflect these changes. Governmental plans would have an additional two years to adopt the amendment.

Health and Welfare Plans: The CARES Act includes the following provisions impacting health and welfare plans:

• A group health plan and health insurance issuer offering group or individual health insurance coverage (including a grandfathered plan) shall not impose any cost-sharing requirement, prior authorization or other medical management requirements for the following services during the public health emergency declared with respect to COVID-19:
  • COVID-19 diagnostic testing and the administration of such testing, and
  • Items and services furnished during office, urgent care and emergency room visits that result in the administration of such diagnostic testing or the evaluation of an individual for the need of such testing.
• A group health plan or health insurance issuer shall reimburse the provider of the diagnostic testing as follows:
  • At the negotiated rate, if the health plan has a negotiated rate for such service with the provider, or
  • If there is not a negotiated rate, the cash price for such services as listed by the provider on a public internet website. Each provider of diagnostic testing for COVID-19 shall make public the cash price for such testing on a public internet website. Failure to comply with such internet posting will result in monetary penalties of up to $300 per day.
• Group health plans and health insurance issuers shall be required to cover any qualifying coronavirus preventive services. For this purpose, a “qualifying coronavirus preventive service” means an item, service or immunization that is intended to prevent or mitigate COVID-19 and that is (1) an evidence-based item or service that has in effect a rating of ‘‘A’’ or ‘‘B’’ in the current recommendations of the U.S. Preventive Services Task Force; or (2) an immunization that has in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved.
• For plan years beginning on or before December 31, 2021, a health plan shall not fail to be a high deductible health plan for health savings account purposes if the plan covers telehealth and other remote care services without application of a deductible.
• After December 31, 2019, amounts paid for over-the-counter medicine and drugs, as well as menstrual products, are treated as medical expenses for health savings accounts, health care flexible spending accounts, health reimbursement accounts and Archer MSAs.
• Direct primary care service arrangements, which are arrangements providing primary medical care (excluding procedures that require anesthesia and laboratory services not typically administered in an ambulatory primary care setting) to an individual for a periodic fee (not to exceed $150 a month for one individual or twice that amount for an arrangement that covers more than one individual, adjusted for inflation) are not considered health plans that would make an individual ineligible to make health savings account contributions. In addition, direct primary care service arrangement fees are treated as medical expenses for purposes of health savings accounts. Employers will report fees paid for direct primary care service arrangements on an employee’s Form W-2. The provisions regarding direct primary care services apply to months beginning after December 31, 2019, in taxable years ending after such date.

We will update these FAQs as more information becomes available regarding the CARES Act or any other pending legislation.

Q: Does HIPAA prevent me from sharing employee information regarding COVID-19?

A: The Health Insurance Portability and Accountability Act of 1996 (HIPAA) usually is not implicated in these situations because the employer is not a covered entity subject to HIPAA. It would likely violate HIPAA if an employer obtained health information regarding COVID-19 from the health plan (which is a HIPAA-covered entity). However, it is more likely that such information would come directly from the employee, and if it did, that would not violate HIPAA. It is important to remember, however, that state data protection laws and other laws do protect medical information, so it is still advisable to protect such information.

Q: Are employees who are not injured or ill eligible for short-term disability benefits if they are quarantined for COVID-19-related reasons but have not been diagnosed with COVID-19?

A: Quarantine, when the employee is otherwise healthy, typically would not trigger short-term disability benefits. An injury or onset of illness is usually necessary to trigger most short-term disability plan benefits. The specific terms of the applicable short-term disability plan should be reviewed to determine whether a given instance of absence from work would qualify for short-term disability benefits. Please note that the employee may be eligible for other paid or nonpaid leave under applicable laws (including pursuant to the Families First Coronavirus Response Act).

Q: Should COBRA be offered to employees who are sent home or cannot work for COVID-19-related reasons?

A: Generally, COBRA applies only if there is a triggering event (e.g., termination of employment or reduction in hours) that results in a loss of group health plan coverage. Each employer will have to look at this based on its current plan provisions and leave policies to determine whether this type of situation triggers a COBRA qualifying event. In the current environment, employers may want to exercise some flexibility, but should clearly document changes from their normal procedures and notify third parties who may be impacted by these changes, such as insurance carriers.

Q: May an employee take a hardship withdrawal from his or her 401(k) plan due to financial needs created by the COVID-19 pandemic?

A: Maybe, depending on the circumstances. First, you need to confirm whether the plan permits hardship withdrawals at all. Second, if the plan does permit hardship withdrawals, you need to determine whether the employee’s situation satisfies the conditions for such a distribution. There are two main conditions that must be satisfied for an employee to take a hardship withdrawal:

• The participant (or, in some cases, the participant’s spouse, child, dependent or primary beneficiary) must have an “immediate and heavy financial need”; and
• The distribution must be necessary to meet that financial need, which generally means that the participant does not have other resources to meet that need (e.g., other available distributions under the plan).

Most plans use “safe harbor” rules to determine if there is an immediate and heavy financial need. At this time, there is no specific safe harbor that would allow any employee to take a hardship withdrawal due to COVID-19. However, there are certain safe harbor financial needs that might be relevant, including:

• Expenses for medical care previously incurred by the participant, the participant’s spouse, any of the participant’s dependents or the participant’s primary beneficiary under the plan; or expenses necessary for those persons to obtain medical care (but limited to expenses for medical care that are deductible under Internal Revenue Code § 213); and
• Payments necessary to prevent the eviction of the participant from the participant’s principal residence or foreclosure on the mortgage on that residence.

It is clear that COVID-19 could trigger expenses related to medical care, in which case plans that include that safe harbor could likely provide a hardship withdrawal to pay for those expenses. While hardship withdrawals to prevent foreclosure or eviction may be appropriate, on March 18, U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson authorized the Federal Housing Administration (FHA) to implement an immediate foreclosure and eviction moratorium for single-family homeowners with FHA-insured mortgages for the next 60 days. While not all evictions and foreclosures fall under this umbrella, states may follow suit with their own moratoriums. Accordingly, hardship withdrawals on account of potential evictions or foreclosures resulting from COVID-19 impacts may be rare.

Many plans have been amended to include an additional, newer safe harbor hardship reason that allows distributions for expenses and losses caused by a federally declared disaster. President Donald Trump has so far only declared a federal “emergency” which is not the same as a federal “major disaster” that involves the Federal Emergency Management Agency (FEMA). Thus, plans that have added this new rule may not provide a distribution as a result of the currently declared federal emergency. But the situation is evolving quickly. As noted above, if enacted, the Coronavirus Aid, Relief, and Economic Security Act would provide for a new coronavirus-related distribution. So it seems quite likely at this point that Congress will enact specific legislation that enables plans to allow distributions for certain specific hardship expenses and losses related to the current COVID-19 emergency.

For plans that do not utilize the safe harbor hardship withdrawal rules, a facts-and-circumstances determination would apply to determine whether the employee has an immediate and heavy financial need that cannot be satisfied through other resources. Plan terms always should be reviewed to ensure that the distribution is appropriate. The plan sponsor should carefully define the types of losses or expenses, determine whether such relief is limited to the participant’s spouse and dependents or is available to relieve the needs of extended family members, and define the sources of plan accounts from which funds may be withdrawn.

Finally, it is also important to remember that hardship distributions are subject to the same tax rules as other plan distributions and cannot be repaid to the plan like a loan. They may also be subject to a 10% early distribution penalty, unless the participant has reached age 59½ or the hardship distribution is for the purpose of satisfying certain medical expenses.

Q: We have significant concerns about company cash flow and viability. What employee benefits issues do we need to consider?

A: Where a company has significant cash flow and viability concerns, we encourage consideration of employee benefits issues that could result in personal liability of certain officers/employees. Essentially, if employee benefits are not paid, the former employees and the U.S. Department of Labor will look for officers/employees (ERISA fiduciaries) to blame. Therefore, we strongly encourage employers to think about these issues as early as possible.

Any amounts withheld from pay for contribution to a 401(k) plan, including loan repayments, as well as employer contributions need to be timely contributed to the trust. Any amounts withheld from pay for insurance contributions (and the employer share of contributions) need to be timely paid to the insurance company. If the company thinks it cannot keep up with payment of employee and employer premium contributions, it may need to consider freezing the plans. This is especially the case if the company does not have control of its bank accounts, e.g., if a creditor is sweeping the accounts and will not agree to honor these commitments.

Also, we are seeing more companies that are self-insured as to health care, including smaller companies that have what is called “level funded” coverage. With a self-insured plan, if the company suddenly shuts down, there is typically no one (and no cash) to pay health care expenses that were incurred but not paid prior to the shutdown, stop-loss coverage ends, and COBRA is not even available. This could be catastrophic to employees, especially if employees are being terminated during a pandemic. Employees could have huge unpaid health care expenses for coverage they were told was in place and be forced to immediately find and pay for other health care coverage. Again, if things are starting to look bad, an employer needs to immediately consider its health care plan and what it can do to ensure that there will not be unpaid health care bills, including negotiating with the parties providing services and with creditors.

Q; We have decided to institute employee furloughs; employees will remain employees but will be asked to not provide services for a period of time. Are there any health plan and ACA issues we need to consider?

A: Where a company has determined that it needs to furlough employees, the company will need to determine whether and how it will handle the continuation of health care for those employees. If the furlough will result in employees experiencing a reduction in hours triggering a loss of health care plan eligibility, a COBRA-qualifying event will have occurred (so long as the company is subject to COBRA). The company will need to offer COBRA coverage to the qualifying beneficiaries; however, such coverage may be unaffordable for certain (or all) employees and expose the company to ACA employer mandate penalties for failure to provide affordable coverage (if the company is large enough to be subject to the ACA employer mandate). If this is the case, the company could decide to accept such exposure and play the odds of how many employees will qualify for subsidized exchange coverage as a result of the furlough. Or the company could decide to subsidize the COBRA coverage so that it will not be unaffordable. Any company considering the furlough of employees should carefully consider the health plan, the ACA and other employee benefits implications of such an action.

Q: We have decided we need to terminate/lay off employees due to our company’s deteriorating financial situation, but we hope we can rehire them. What employee benefits issues do we need to consider?

A: Where a company has already decided to terminate a large number of employees, we advise ensuring that what the company is doing is consistent with the terms of its employee benefits plan documents, including insurance policies. For example, the health care plan terms should define when coverage terminates, and a Consolidated Omnibus Budget Reconciliation Act (COBRA)-qualifying event occurs (such as the end of the month in which termination occurs). Past practices are not necessarily consistent with plan documents, so we caution companies not to rely on that alone without reviewing the appropriate documents. If the employer wants to be more generous than the plan terms, it needs to consider whether the plan terms need to be amended and whether insurer consent is required. This is the case whether the health care plan is fully insured or is self-insured with stop-loss coverage. If a decision is made to be more generous than the plan terms and insurer consent is not obtained, there is a risk that an individual could incur substantial health care costs (e.g., requiring the use of a ventilator in a COVID-19-related case), and the insurer would take the position that the individual was not covered, leaving the employer potentially self-insuring the cost of care.

If severance will be paid in the form of a simple lump sum, that can typically be done without adopting an Employee Retirement Income Security Act (ERISA) severance plan. If the severance is more complicated, including severance payments over time and COBRA subsidies, there are other potential issues to consider, such as whether any self-insured health care benefits discriminate in favor of highly compensated individuals, whether the company has created a severance plan subject to ERISA and whether there are any Internal Revenue Code Section 409A deferred compensation issues.

The company also needs to consider its strategy for compliance with the Affordable Care Act (ACA) and its health care plan’s terms. What provisions will apply when/if the employee is rehired? Is this consistent with the company’s intent or might plan amendments be required? The ACA generally requires certain rehired employees to be treated as continuing employees if their break in service is short enough, so the company should be mindful of these rules if and when it begins the rehiring process.

The company also needs to consider its 401(k) plan. If a significant number of employees are terminated, the 401(k) plan may be deemed to have a partial termination, which requires vesting of affected participants. The determination of whether a “significant number” of employees have been terminated has numerical guidelines, but also is a facts and circumstances test, so counsel should be engaged to help the company understand the implications of terminating a group of employees. Also, the employer needs to anticipate that terminated employees will request distributions based on their termination from employment. If the employer is intending to rehire these employees very quickly, proceeds with distributions and then does quickly rehire the employees, these may be deemed sham terminations for which distributions should not have been allowed.