The Impact of the CARES Act on Employee Welfare Benefit Plans, Programs, and Arrangements
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is the third significant piece of federal legislation recently enacted in response to the COVID-19 pandemic. This latest law follows the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Families First Coronavirus Response Act (“FFCRA”), which were signed into law on March 6 and March 18, 2020, respectively. Collectively, these three laws combine broad-based economic stimulus with targeted measures aimed a propping up the U.S. economy and workforce. Building on the previous legislation, the CARES Act provides additional income assistance, enhances unemployment insurance benefits, and adopts certain other consumer financial protections, among other things.
This post focuses on the provisions of the CARES Act that affect welfare benefit plans.
Exemption for Telehealth Services
Telehealth services generally cover physician office visits, consultations, and certain other medical or health visits that are conducted online, via telephone, or using some other telecommunications technology (e.g., real-time audio and video). Under prior law, participants covered by High Deductible Health Plans (“HDHPs”) that included telehealth benefits were generally required to pay for those services until they satisfied the applicable deductible or reached their out-of-pocket limit. First-dollar telehealth services could be provided only if considered to be preventive care or otherwise permitted or disregarded under law, regulation, or guidance.
Effective on the date of enactment, the CARES Act amends Internal Revenue Code § 223(c) to provide that a plan does not fail to be treated as a HDHP by reason of providing telehealth and other remote care services without imposing a cost sharing. Thus, participants in HDHPs can receive first dollar coverage for telehealth and other remote care services and still be able to contribute to a health savings account (“HSA”). This rule applies during plan years beginning before January 1, 2022.
Coverage of Diagnostic Testing for COVID-19
Beginning April 2, 2020, the FFCRA required group health plans and health insurance issuers offering group or individual health insurance coverage to cover, without any cost-sharing (i.e., deductibles, copayments or coinsurance), prior authorization, or medical management requirements:
- FDA-approved COVID-19 testing, and
- Items and services furnished to an individual during health care provider office visits, urgent care center visits, and emergency room visits that result in an order or administration of COVID-19 testing, or evaluation of such individual for purposes of determining the need for such testing.
The CARES Act expands this coverage requirement to include tests for which developers have requested or intend to request emergency use authorization from the FDA, or that have been developed in and authorized by a state, or that the Secretary of Health and Human Services determines appropriate in guidance. The requirement does not apply to excepted benefits, such as accident, stand-alone vision and dental, or hospital/fixed indemnity insurance.
The CARES Act also establishes rules for determining reimbursement rates for COVID-19 testing and related items and services.
Further, the CARES Act modifies prior law which stated that preventive services must be covered without cost-sharing only when provided by an in-network provider and could be subject to reasonable medical management techniques (such as preauthorization requirements). The CARES Act requires all group health plans and issuers to reimburse in-network providers at the negotiated rate in effect before January 31. Out-of-network providers must be reimbursed at a rate no greater than the cash price listed by the provider on a public internet website. It is not yet clear whether providers must also post the prices of items and services related to the diagnostic test, such as an office visit or evaluation.
While nothing in the FFCRA or the CARES Act requires plans or issuers to cover treatment of COVID-19, plans and polices routinely cover medically necessary services that would include COVID-19 treatment without referring to it by name.
Rapid Coverage of Preventive Services and Vaccines for Coronavirus
Existing law generally requires that non-grandfathered group health plans and health insurance issuers cover preventive services without cost sharing. “Preventive services” for this purpose include evidence-based items or services that have in effect a rating of “A” or “B” from the U.S. Preventive Services Task Force (“USPSTF”). Changes to the list of recommended preventive services are usually effective beginning in the plan year that begins on or after one year from the latest issue date. So that health plans will promptly provide cost-free coverage of COVID-19 vaccines recommended by the USPSTF or the Center for Disease Control, the CARES Act requires plans and issuers to implement changes to the preventive services recommendations relating to “qualifying coronavirus preventive services” within 15 business days following the date on which a recommendation is made.
Allowance of Credit for Certain Health Plan Expenses
The FFCRA imposes new paid sick leave requirements on employers with fewer than 500 employees under two separate provisions: (i) the Emergency Paid Sick Leave Act (“EPSLA”), which grants workers up to 80 hours of paid sick time when they are unable to work for certain reasons related to COVID-19; and (ii) the Emergency Family and Medical Leave Expansion Act (“Expanded FMLA”), which entitles workers to certain paid family and medical leave. Employers subject to the EPSLA and the Expanded FMLA paid leave requirements are entitled to fully refundable tax credits to cover the cost of the leave required to be paid during the periods of time employees are unable to work. To offset the cost of providing paid leave under these provisions, employers may qualify for certain refundable payroll tax credits including a credit for “qualified health plan expenses” during the period beginning April 1, 2020, and ending December 31, 2020. FFCRA section 7001(d)(2) defines “qualified health plan expenses” to mean:
[A]mounts paid or incurred by the employer to provide and maintain a group health plan (as defined in section 5000(b)(1) of the Internal Revenue Code of 1986), but only to the extent that such amounts are excluded from the gross income of employees by reason of section 106(a) of such Code.
This includes the cost of group health plan coverage, whether fully insured or self-funded, as well as the costs of health FSAs, HRAs, and EAPs and wellness programs that provide medical care. The IRS has issued a helpful Q&A document entitled COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses, which includes guidance on determining the amount of allocable qualified health plan expenses. To the extent that the credit exceeds Social Security taxes, the credit is refundable to the employer.
Employee Retention Tax Credit
Section 2301 of the CARES Act adds a new, refundable payroll tax credit for 50 percent of qualified wages paid by “eligible employers” whose gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. An eligible employer for this purpose is an employer that was “carrying on a trade or business during calendar year 2020” and whose operations are fully or partially suspended due to “orders from an appropriate governmental authority limiting commerce, travel, or group meetings . . . due to the coronavirus disease 2019 (COVID-19).”
The credit is applied against “qualified wages,” the meaning of which differs depending on the number of employees employed by the employer and entities under common control with the employer (employee headcount is based on the Code section 4980H rules governing employer shared responsibility under the Affordable Care Act). Where employers have more than 100 employees, “qualified wages” include wages paid to employees when they are not providing services due to the coronavirus disease. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit. In no case, however, may qualified wages exceed the amount an employee was being paid during the 30 days immediately preceding the period to which the credit applies. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee, and it is reduced by the FFCRA refundable tax credits described above.
Pre-Tax Purchases of Over-the-Counter Medical Products
Effective in 2011, the Affordable Care Act added a new Internal Revenue Code § 106(f), under which expenses incurred for medicines or drugs may be paid or reimbursed by an employer-provided plan, including a health FSA or HRA, only if the medicine or drug (i) requires a prescription; (ii) is available without a prescription (an over-the-counter medicine or drug) and the individual obtains a prescription, or (iii) is insulin. Effective for expenses incurred after December 31, 2019, section 3702 of the CARES Act allows funds in health FSAs, HSAs, and Archer MSAs to be applied to the purchase of over-the-counter medicines and drugs without a prescription from a physician and for the purchase of menstrual care products.
Final Thoughts
There is a good deal of work to be done by regulators and plan sponsors in order to implement many of the FFCRA and CARES Act provisions. Congress drafted, debated, and passed the FFCRA and the CARES Act in record time. Technical corrections will be required, and there will be gaps to fill via regulations and other regulatory guidance. Employers will also need to consider and make plan design decisions and adopt plan amendments, where necessary. Finally, as Congress debates additional COVID-19-related relief, further changes may well be in store.
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