COVID-19: Benefits FAQs for Health and Welfare Plans

Employers impacted by COVID-19 have a variety of questions regarding the situation’s effect on employee health and welfare plans - particularly on how to maintain compliance with state and federal regulations. This advisory is designed to address a number of those concerns, and we will continue to issue similar alerts on other benefits topics, including how retirement plans and leave-sharing plans may be affected.

As this is a rapidly changing subject, employers are strongly advised to consult with benefits counsel before making any changes to their benefit plans.

• 1. Can an Employer Provide a "Premium Holiday?"

Generally, yes, an employer can pay for employees’ share of premiums via a premium holiday. We are typically seeing this for medical plans, but it could apply to any health and welfare benefits. Before committing to a premium holiday, an employer should consider two points: 

• First, whether this is allowed by the plan’s terms. With a self-insured plan it would be easy to make any necessary changes. Insured plans are a bigger challenge if they lock in the employer premium, and we recommend obtaining the insurer’s confirmation if the employee premium is locked in.
• Second, review the Section 125 plan. The Section 125 plan (aka flexible benefits plan, or cafeteria plan) allows employees to make pre-tax payments for certain benefits but, because it is tax-advantaged, there are restrictions on when elections can be changed. Employers should review their 125 plans to ensure that changes can be made to employees’ cost-sharing (which should be covered by standard cost-change events), and also consider whether they want to allow non-enrolled employees to enroll now (or prevent them from doing so).

• 2. How Can Employees Continue to Pay Their Health Premiums While on a Furlough/Leave of Absence?
  

  Typically, there are three ways to continue payment:

  • (1) Pay by check;
  • (2) Prepay; or
  • (3) Employer pays, then recoups if the employee returns to work.

  Employers should check their plans and policies to see which options they offer. Most well-drafted plans will include all three methods and make them optional. If not, the relevant plan can easily be amended.

  Employers should understand that they may have to combine these options to maintain benefits (e.g., require payment by check, but cover the cost if the employee stops payment, and then recoup ). Employers should also obtain the employee’s authorization to recoup any premiums it pays, and consider whether to extend this repayment obligation to employees who terminate employment.

• 3. Would the Cost of COVID-19 Testing Be Covered by Medical Insurance?
  

  As testing is available only with a doctor’s recommendation, it should be covered as a necessary medical expense. Some plans are treating testing as “preventive” care that is available without a deductible. Some insurers have announced that they will waive all cost-sharing for testing or telemedicine visits.

  Washington, Oregon, California, New York, and other states have either ordered all insurance plans to cover testing (and in some cases treatment) without cost or obtained agreement from insurers in their state to do so. Self-insured plans may decide to follow suit. The Families First Coronavirus Response Act requires all group health plans, including self-funded plans, to cover testing without cost sharing but not treatment. The IRS has ruled that providing testing and treatment without cost-sharing will not affect HSA eligibility under high-deductible plans.

  If the patient is quarantined at a hospital during testing, that should also be covered, again subject to plan terms such as in-network vs. out-of-network coverage. There have already been news stories about “surprise bills” received by individuals who were evacuated to the United States and kept in quarantine who were uninsured or were at out-of-network facilities.

  • It is not yet clear whether new federal funding will include programs to pay for testing or quarantine for the uninsured. Washington and some other states have announced that they will cover testing costs for the uninsured if they believe they may be sick.

• 4. Are There Ways to Further Extend Coverage for Employees Who Are Terminated or Furloughed?
  

  If the employer has a self-funded plan, it can amend the plan to extend coverage in either situation. For example, for terminated employees it could provide that coverage but it would end 90 days after termination rather than at the end of the month. It could also expand whatever plan language exists regarding coverage for employees who are furloughed, or tailor it to employees on furlough, or tailor it to employees on furlough due to COVID-19 related closures. .

  Again, the employer should expect to cover the full “premium” cost during this extended coverage. The plan’s stop loss carrier must be notified of any such amendment expanding the plan’s eligibility.

• 5. Can Furloughed Employees Change Their Elections Under Our Cafeteria Plan?
  

  For health coverage and health FSAs, a furlough is a “change in status” only if it results in a change in eligibility under the plan. For dependent care accounts, many furlough-related changes will allow a change of election.

  For example, an employee who is furloughed (or whose spouse is furloughed) may care for their children themselves instead of using a childcare provider and would be allowed to change their dependent care elections.

• 6. Does COBRA Apply if Employees Are Terminated, and When?
  

  Yes, for employers with more than 20 employees ( fewer under some state “mini-COBRA” laws), an employee who is terminated and will lose eligibility for health plan coverage must be offered up to 18 months of continuation coverage. Continuation coverage is usually at the employee’s expense, although employers may choose to subsidize part or all of the coverage to ensure that employees do not lose coverage immediately (see Question 8 for risks regarding employer subsidies).

  Normally, employer-provided coverage usually ends at the end of the month in which a termination occurs, but as explained below, there may be ways to extend coverage and delay triggering COBRA.

• 7. Does COBRA Apply to Employees Who Are Furloughed, and When?
  

  Yes, because a reduction in hours can also trigger a loss of eligibility under the health plan. Again, coverage will often end (and COBRA coverage would start) at the end of the month, but if the policy looks to the number of hours worked in a prior month, loss of eligibility may be delayed.

  The health plan or policy may also have language that allows for an extension of coverage while employees are temporarily out of work, before eligibility is lost. The policy may refer to employees who are on furlough, standby, temporary layoff, or unpaid leave of absence, and coverage may be extended for a limited period, usually 30-90 days.

  • As a practical matter it may be necessary for the employer to pay the full premium during the period of coverage while employees are not being paid, but it can recoup the employee’s share of premium after they are recalled, like with FMLA leave. (See Question 9 for related ACA “look-back” issues.)

• 8. Can an Employer Subsidize COBRA Coverage for Employees Who Have Lost Coverage Due to Termination or Reduction in Hours?
  

  If the employer is offering the subsidy to everyone, probably yes. If not, the employer must review whether its actions are discriminatory, which would adversely impact highly compensated employees.

  If an employer offers a subsidy, there may be coordination issues between Exchange coverage and COBRA (although this may be alleviated in the short term if the Exchanges allow limited time special enrollment for COVID-19 reasons, such as in Washington, California, and New York). The issues are discussed in more detail in this advisory.

• 9. We Use the Look-Back Method to Determine Full-Time Employees for Affordable Care Act (ACA) Employer Mandate Purposes. What Should We Be Aware of if We Furlough Employees or Reduce Their Hours?
  

  If you are an employer with at least 50 full-time employees and use the “look-back” method to determine full-time status, you may need to continue medical benefits to avoid potential ACA penalties if you are reducing hours below 30 per week for any employee.

  • As a reminder, to avoid ACA penalties, an employer subject to the mandate must offer minimum essential coverage that is affordable and minimum value to at least 95 percent of its full-time employees. A full-time employee is someone who averages at least 30 hours a week or 130 hours a month.

  To determine full-time employees, an employer could either measure hours on a monthly basis or use the look-back. The look-back involves reviewing hours over a period of time (typically 12 months), and if the employee averages 130 hours per month, they are locked into full-time status for a subsequent stability period (also typically 12 months).

  The significance of the stability period is that even if an employee’s hours drop (perhaps to zero), the employer must continue to treat that employee as full-time and offer coverage. Therefore, for an employer using the look-back, if hours are reduced below 30 per week (including a furlough), medical benefits must continue to be offered to avoid potential ACA penalties.

  However, what happens next depends on whether the employer’s plan design simply continues employee coverage at employee rates regardless of the hours drop, or if the design continues coverage but treats the drop in hours as a COBRA event.

  • If the former, the employer should continue offering coverage at employee rates. If the latter, the employer should continue to offer coverage but it is now COBRA coverage, and the employer could require an employee to pay full COBRA rates, although this would likely make the coverage unaffordable and exposes the employer to potential ACA penalties if the employee gets subsidized Exchange coverage.

  Also (because that is not enough of a headache) if the employee is terminated and subsequently rehired but has not incurred a 13-week break in service (or shorter period if used by the employer), they should not be treated as a new hire and must commence coverage on their return.

• 10. What if We Use the ACA’s Monthly Method to Determine Full-Time Status?
  

  For an employer using the monthly method, the analysis is easier than the look-back. If hours are reduced below 30 per week (including a furlough), medical benefits are not required to be offered, but COBRA is likely triggered because of the loss of coverage caused by the hours reduction.

  If reduced hours remain 30 or more, the employer must continue to offer coverage to avoid potential ACA penalties. If the employer ceases contributions towards medical plan premiums, this would impact affordability and could trigger penalties if the employee gets subsidized Exchange coverage.

• 11. Might the Furloughed Employee Be Eligible for Short-Term Disability? What Factors Would Be Important to Review to Make That Judgment?
  

  Employers with short-term disability plans will need to review their plan documents to determine eligibility. Additional factors to review include:

  • 1) Is the plan insured or self-insured;
  • 2) Does the individual meet the definition of “disability”;
  • 3) Will the employee be out of the workplace long enough to meet the “waiting period”; and
  • 4) Is the employee showing symptoms or being quarantined and is asymptomatic.

• 12. Did the Date for HSA Contributions Get Extended?
  

  Yes, the IRS confirmed in FAQs that for 2020, contributions may be made to employees’ HSAs at any time up to July 15, 2020 (extended from the usual deadline of April 15).

The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.

DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.