The coronavirus public health emergency has created a number of issues impacting employee benefit plans.  Employers are asking numerous questions, including:  What does our health plan have to cover as it relates to coronavirus testing and treatment?  Can my employees take a distribution from their retirement plan penalty-free to deal with the coronavirus and its impact on their families?

As discussed below, on the health plan side, Congress and President Trump have taken swift action this past week, and we have some clear rules regarding what is (and is not) required.  We are still, however, waiting on some additional guidance.

Later in this article we also preview some of the possible changes that are being contemplated by Congress and President Trump on the retirement plan side.  So far, nothing has changed.  Employees cannot take a distribution from their 401(k) plan account, for example, just because of the coronavirus.  But we will likely have more flexibility at the end of this coming week, depending on what laws are passed.

Required change to health plans to cover coronavirus testing

The Families First Coronavirus Response Act, termed as Phase 2 of the coronavirus relief legislation, was signed by the President on Wednesday, March 18, 2020. The Act requires employers to make changes to their employee health plans to cover coronavirus testing.

Employer-sponsored group health plans (both insured and self-insured and regardless of grandfather status) must provide coverage for FDA-approved diagnostic testing products for coronavirus. Plans must also cover the items and services furnished to an individual during an office visit (whether an in-person or telehealth visit), urgent care center visit, or emergency room visit to the extent they relate to furnishing the test or evaluating the individual’s need for the test. Both the test and the visit must be covered with no cost-sharing requirements (including deductibles, copayments, and coinsurance), as well as no prior authorization or other medical management requirements.

Here are some clarifying points:

1. The new law requires coverage of the office visit related to the coronavirus test itself, without cost-sharing.
2. The new law requires coverage of the office visit without cost-sharing, even if the provider determines actual testing is not necessary.
3. It is not clear whether the new no-cost-sharing requirement (for testing and related office visit) applies to out-of-network providers. So far, the consensus seems to be yes – although we expect more guidance on this point to hopefully make it clear that it’s only in-network.
4. If the testing is required or prescribed by the provider, a plan cannot apply prior authorization or medical management requirements at the plan level (e.g., plan can’t require a negative flu test before paying with no cost-sharing for the coronavirus test.)
5. Coverage for treatment, beyond the diagnostic testing, is not required.  However, as more treatment options for coronavirus become available, it is likely the no cost-sharing requirement could be expanded to include certain treatment.  But treatment is not included for now.

These requirements are to be more fully implemented in sub-regulatory guidance by governmental agencies in due time. By the text of the statute itself, it appears that excepted benefit plans and retiree-only health plans are not subject to these requirements, but additional agency guidance will be needed on these topics.

Coverage is required as of the day the Act was enacted (Wednesday, March 18, 2020) until the U.S. Secretary of Health and Human Services determines that the emergency has expired.

Additionally, the IRS has released guidance indicating that coverage of coronavirus testing and treatment by a high deductible health plan (HDHP) before a participant has met the applicable deductible will not cause the plan to fail to qualify as a HDHP, and participants will continue to be eligible to contribute to their health savings account (HSA).

Employers should take steps now to implement this change to their health plans.  Employers can make these operational changes now and then work to put in place any required plan amendment later (by the end of this plan year, e.g., 12/31/20).

Proposed changes for employer-sponsored retirement plans

In keeping with the fast pace of legislative response to coronavirus, on Thursday, March 19, 2020, Senate Majority Leader Mitch McConnell introduced the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the Senate – what is being termed as Phase 3 of the legislative response. While this is not yet law, the bill shows the legislative goals of the Republican majority leader, and we could expect to see some version of this enacted soon.

A significant part of the CARES Act would affect employer-sponsored retirement plans. Typically, an employee may not withdraw funds from an employer-sponsored plan, such as a 401(k) plan, before the age of 59½ without being subject to an early withdrawal penalty. However, the CARES Act would allow participants to take a “coronavirus-related distribution” of up to $100,000 without being subject to the early withdrawal penalty.

Additionally, participants would be able to repay the distribution at any time during the three-year period after the distribution by making one or more contributions back to the plan.

As currently drafted, a participant could take a coronavirus-related distribution starting on the date that the CARES Act is enacted and until December 31, 2020. The distribution could be made to a person:

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

While the early-withdrawal penalty would not apply to these distributions, pre-tax contributions are still subject to income tax. However, the CARES Act would allow any income tax owed on the distribution to be spread out equally over three years unless the participant elects otherwise.

Additionally, for the 180 days following the enactment of the CARES Act, the maximum loan that a participant could take from his account would be increased, generally, to the lesser of $100,000 or 100% of the nonforfeitable balance of his or her account (up from $50,000 and 50% of his or her nonforfeitable balance). There would also be favorable loan repayment terms.

If the CARES Act becomes law, these changes may be operationally implemented immediately as long as the plan is amended on or before the last day of the first plan year beginning on or after Jan. 1, 2020, or later if prescribed by the U.S. Treasury Secretary.

It is important to remember that as of today (Sunday, March 22, 2020), there are no new rules.  Employers should not let an employee take a distribution from their retirement plan account unless the employee qualifies under the existing rules (e.g., retirement age, disability, hardship, normal plan loans, etc.).  But employers should check back here for updates for the status of the CARES Act in Congress.  If enacted, these provisions would give employees who are affected by the coronavirus another source of income they may not otherwise have considered.