In light of the U.S. Supreme Court ruling in Dobbs v. Jackson Women’s Health Organization overruling the constitutionally protected right to an abortion, many employers have announced various travel benefits that may cover employees who wish to seek abortion services that might not be available in their state. While many employers have included that travel benefit as a component of their group health plans, other employers have explored travel benefits outside of the group health plan.
As discussed in our recent Client Alert, adding a travel benefit inside or outside of a group health plan has compliance challenges. As part of our ongoing “Reproductive Healthcare Issues for Employers” series, I will take a deeper dive into what might cause a travel benefit reimbursement program to become an “employer payment plan” (“EPP”) in violation of the requirements of the Affordable Care Act (“ACA”) market reforms, and how employers might structure a benefit to avoid application of those ACA rules.
What is an EPP and Why should Employers Care?
In the years following the ACA’s enactment, the Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) issued guidance clarifying that certain pre-tax and post-tax arrangements used by employers to reimburse employees for costs of individual insurance or limited medical expenses were violations of the market reform provisions of the ACA. Specifically, these arrangements, by their nature, failed to satisfy the ACA’s prohibition against annual limits on the dollar amount of essential health benefits covered under the plan and the ACA requirement that plans cover preventative services without any cost sharing. Violating these rules would subject employers to an excise tax penalty of $100 per day, per employee eligible for the arrangement.
Later, the IRS issued additional guidance providing that in certain situations, a health reimbursement arrangement (“HRA”) could be “integrated” with a group health plan to avoid violating these market reform rules.
Why Would a Travel Arrangement be an EPP?
As discussed in more detail in a previous post by my colleague Cyndi Moore, Internal Revenue Code (“Code”) Section 213(d) defines “medical care” to include not only “amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease,” or “for the purpose of affecting any structure of the body,” but also “transportation primarily for and essential to” any “medical care.” The Employee Retirement Income Security Act of 1974 (“ERISA”) defines “group health plan” nearly identically.
How Can Employers Offer Compliant Travel Benefits?
There are at least three options for employers to consider when offering a compliant travel benefit for abortion-related services:
- Make Travel Benefits a Part of a Group Health Plan.
The most conventional approach to offering travel benefits related to medical care would be to integrate such benefits into a group health plan. While it would be permissible to add a specific abortion travel benefit under the ACA rules, doing so may result in a violation of the Mental Health Parity and Addiction Equity Act (“MHPAEA”) in that it would create a treatment benefit or financial benefit not afforded to mental health or substance use disorder benefits. Therefore, employers may need to consider adding a neutral travel benefit as to eligibility (i.e., not just women) and medical services covered (i.e., not just abortion).
- Pair Travel Benefits with a Preventive Services Only Plan.
Another approach for employers would be to integrate a travel benefit into a plan that only covers preventive services. These are sometimes called “minimum essential coverage only” or “MEC” plans. This would allow the travel benefit to stay compliant with the ACA rules discussed above, but compliance with MHPAEA would still be challenging. Additionally, employees who enroll in this benefit may not be eligible for a premium tax credit if they wished to seek major medical individual coverage on the ACA exchange.
- Offer Post-Tax Travel Benefits that Are Not a Group Health Plan.
An employer could permissibly offer an open-ended travel benefit to employees that would result in additional taxable wages to the employee. This would allow the travel benefit to exist outside a group health plan without being subject to the group health plan and ACA rules.
In this instance, the employer would not be able to specify that a travel stipend is for abortion or any medical care. This would mean that employees could use a travel stipend for other purposes not primarily for or essential to medical care, such as personal vacations, and employers would not be able to require substantiation that the travel was for a medical purpose. While the open-ended nature of such an arrangement may create higher costs, such an arrangement may help the employer avoid scrutiny in states that plan to aggressively enforce “aiding and abetting” rules related to abortions. It would also allow employers to reimburse for expenses such as food and beverage purchased during travel.
An employer maintaining an open-ended travel benefit, however, would not be able to argue for ERISA preemption of such a benefit. Additionally, any data that might be obtained about employee use of this benefit would not be protected under HIPAA. Therefore, limiting the data collected about employee use of such benefits may operate in the employer and employee’s best interest.
Rules Less Clear for EAPs
An employee assistance plan (“EAP”) is an employee benefits program provided by an employer to assist employees with well-being and mental wellness support. EAPs are not subject to the ACA to the extent that they do not offer “significant benefits in the nature of medical care or treatment.” The extent to which an EAP could offer travel benefits related to medical care or treatment is unclear based on existing guidance. Expanding benefits beyond what is permissible could cause the EAP to run afoul of the ACA market reform rules. Therefore, the permissibility of using an EAP for such reimbursement is less clear unless or until further guidance is issued.
While the approaches outlined above may provide compliant methods of structuring a travel benefit based on federal law, one acknowledged the risk of any approach discussed above is that it also relies significantly on sub-regulatory guidance from the IRS and DOL. The Biden Administration (or a new administration) in Washington could change views on many of the issues above, which could significantly alter the analysis. An additional acknowledged risk is the ever-changing state law landscape and the willingness of local and state prosecutors to take varying approaches on the enforcement of laws that prohibit the “funding” of abortion. Employers will need to exercise caution and consult carefully with benefits counsel to keep abreast of these developments.
The Dickinson Wright Employee Benefits and Executive Compensation Group has been and will continue to monitor the impact of these issues as they evolve to advise clients on methods for responding to this changing landscape.
See part 1 of our “Reproductive Healthcare Issues for Employers series: May Abortions be Reimbursed on a Tax-Free Basis from a Health Flexible Spending Account, a Health Reimbursement Arrangement, or a Health Spending Account?
About the Author:
Eric W. Gregory is a Member of Dickinson Wright’s Troy office, where he assists clients in all areas of employee benefits law, including qualified retirement plans, welfare plans, and nonqualified compensation programs. Eric can be reached at 248-433-7669 or email@example.com , and you can visit his bio here.