I. Background

On March 27, 2020, President Donald Trump signed the “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”). This alert addresses health and welfare issues in the CARES Act and some health and welfare issues in the “Families First Coronavirus Response Act” (“FFCRA”) that were not previously addressed in our March 16, 2020 alert titled “COVID-19: Employer Group Health Plan Changes to Help Employees and Stop the Spread of the Virus,” or were open to interpretation.

II. CARES Act Section 3701 – Exemption for Telehealth Services

In our March 16, 2020 alert, we highlighted that high deductible health plans (“HDHPs”) cannot provide non-preventive care free of charge to participants until participants satisfy their deductibles. Although IRS Notice 2020-15 provided an exception for COVID-19 testing and treatment, it did not provide any relief for waiving HDHP deductibles for telehealth visits that are not for COVID-19 testing or treatment.

The CARES Act provides such relief. Section 3701 amends the Internal Revenue Code (the “Code”) Health Savings Account (“HSA”) requirements to provide that for plan years beginning on or before December 31, 2021, a plan shall not fail to be treated as an HDHP for providing telehealth and other remote care services free of charge before the required deductible is met.

This may be welcome relief for employers who can now waive deductibles for some or all HDHP telehealth visits without causing their plan to fail to be an HDHP and rendering all participants HSA-ineligible. While Section 3701 is broad, it is still somewhat vague with respect to just how broadly employers may interpret this provision. For example, clearly employers can waive all deductibles for traditional telehealth visits, but it is unclear whether it applies to providers outside of the telehealth plan and network who have decided to begin offering remote care services in response to the COVID-19 pandemic. Arguably, it does.

Despite this new HDHP flexibility, it is important to note that the CARES Act, like IRS Notice 2020-15, permits but does not require employers to waive deductibles beyond what is required under FFCRA (i.e., COVID-19 testing and items and services that result in COVID-19 testing).

III. CARES Act Section 3201 – Coverage of Diagnostic Testing for COVID-19

As noted in our March 16, 2020 alert, Section 6001 of FFCRA generally requires group health plans and health insurance issuers to cover, without any cost-sharing (i.e., deductibles, copayments or coinsurance), prior authorization, or medical management requirements: (1) FDA-approved COVID-19 testing; and (2) 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 a COVID-19 testing or evaluation of such individual for purposes of determining the need for such testing. This requirement applies from March 18, 2020 until the Secretary of Health and Human Services (“HHS”) determines that the public health emergency has expired.

Section 3201 of the CARES Act expands this provision to also require group health plans and health insurance issuers to cover, without cost-sharing, prior authorization or medical management requirements, certain COVID-19 diagnostic products that have not been FDA-approved yet including:

• Tests that the developer has requested or intends to request, emergency use authorization from the FDA, unless and until the request has been denied or the developer does not submit a request within a reasonable timeframe;
• Tests developed and authorized by a State that has notified HHS of its intention to review tests intended to diagnose COVID-19; and
• Other tests that HHS determines appropriate.

IV. CARES Act Section 3202 – Pricing of Diagnostic Testing

Section 3202 of the CARES Act requires group health plans and health insurance issuers providing COVID-19 testing to pay the provider either: (1) the rate the plan or issuer negotiated with the provider that was in effect before the Secretary of HHS declared a public health emergency on January 31, 2020; or (2) if the plan or issuer had not previously negotiated a rate with the provider, the provider’s cash price listed on the provider’s website, or a rate the plan or issuer negotiates with the provider that is less than such cash price. This clarifies that plans and issuers must cover COVID-19 testing for both in-network and out-of-network claims, which was an outstanding issue noted in our March 16 alert.

V. CARES Act Section 3203 – Rapid Coverage of Preventive Services and Vaccines for Coronavirus

Section 3203 of the CARES Act requires group health plans and health insurance issuers to cover without cost-sharing any “qualifying coronavirus preventive service,” which includes an item, service, or vaccine that is intended to prevent or mitigate coronavirus that is: (1) an evidence-based item or service with an A or B rating recommended by the U.S. Preventive Services Task Force; or (2) a vaccine that has in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention.

This requirement takes effect 15 business days after the date on which the U.S. Preventive Services Task Force or Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention makes such a recommendation. The 15-day time frame after which a group health plan must cover a qualifying coronavirus preventive service is significantly shorter than the timeframe for other preventive services under the ACA preventive care rules. The ACA preventive care rules generally require that a group health plan cover evidence-based items or services with an A or B rating recommended by the U.S. Preventive Services Task Force the plan year beginning on or after one year after the recommendation is issued.

Unlike the requirement under Section 3201 of the CARES Act, this is a permanent requirement and does not end when HHS determines that the public health emergency has expired.

VI. FFCRA Sections 7001(d) and 7003(d) – Allowance of Credit for Certain Health Plan Expenses

As explained in our March 19, 2020 alert, “Families First Coronavirus Response Act: Summary of the Employment Provisions of the New Law,” FFCRA Sections 7001(d) and 7003(d) provide employers with a refundable tax credit against the employer’s share of Social Security and Medicare Tax (FICA Tax) or excise tax for employers subject to the Railroad Retirement Tax Act (RRTA Tax), as applicable. In addition to the credit for “qualified family leave wages” and “qualified sick leave wages,” employers can also receive a credit for “qualified health plan expenses.”

Qualified health plan expenses are defined as amounts paid or incurred by the employer to provide and maintain a group health plan (as defined under Code Section 5000(b)(1)), but only to the extent that such amounts are excluded from the gross income of employees under an employer-provided accident or health plan (i.e., excludable per Code Section 106(a)).

A Code Section 5000(b)(1) group health plan generally means an employer-sponsored self-funded or insured plan to provide health care to employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families. Examples include medical, dental, vision, and prescription drug plans, health flexible spending accounts (“FSAs”), health reimbursement accounts (“HRAs”), certain employee assistance programs, certain wellness programs, and potentially other plans and programs. IRS FAQs 31-36 clarify that the tax credit applies to all insured and self-funded group health plans, employee-only and family coverage, and the employer and employee pre-tax premiums for coverage but not the underlying benefits. Employers may calculate group health plan expenses by using the COBRA premium or for self-funded plans using a reasonable actuarial method.

A credit may only be obtained for the portion of the qualified health plan expenses properly allocable to the qualified wages. Generally, the allocation must be pro rata among covered employees and pro rata on the basis of periods of coverage (relative to time periods of leave). See IRS FAQs 33 and 34 for more information and options for allocating expenses for insured and self-funded plans.

VII. CARES Act – Section 2301(c)(3)(C) Employee Retention Credit for Employers Subject to Closure due to COVID-19; Allowance for Certain Health Plan Expenses

The CARES Act Section 2301 includes an additional credit for retaining employees that provides a credit for “qualified health plan expenses.” The definition of qualified health plan expenses under Section 2301(c)(3)(C) is consistent with the definitions under FFCRA Sections 7001(d) and 7003(d) described above. Therefore, although the IRS FAQs mentioned above do not explicitly address this provision, the IRS will likely apply similar rules to this tax credit.

Please see our March 30, 2020 alert titled “The CARES Act Includes Many Tax Incentives for Employers - Deferral of Payment of Employer Taxes and Employee Retention Credit” for more information. 

VIII. FFCRA – Section 3102 Amendments to the Family and Medical Leave Act of 1993

As noted in our March 19, 2020 alert, “Families First Coronavirus Response Act: Summary of the Employment Provisions of the New Law,” FFCRA’s Emergency Family Medical Leave Expansion Act (“EFMLEA”) amended the FMLA to require employers with fewer than 500 employees to provide up to 12 weeks of job-protected FMLA leave to employees who have been on the payroll for 30 calendar days when an employee is unable to work (or telework) due to a need to care for a minor child if the child’s school or place of childcare has been closed or is unavailable due to a public health emergency.

While the EFMLEA expanded employee leave rights under FMLA Section 102(a), it did not amend FMLA Section 104(c), which requires employers to maintain group health plan coverage during any period that an eligible employee takes leave under Section 102 for the duration of the leave as if the employee was continuously employed for the duration of the leave. As a result, small employers with fewer than 50 employees who were never before subject to the FMLA, but are subject to the EFMLEA, will have to continue group health coverage for employees who take EFMLEA leave. Large employers with 50-500 employees will have to continue group health coverage for employees who take EFMLEA. Employers may need to amend plans to reflect this new reason to continue group health coverage.

IX. CARES Act Section 3702 – Inclusion of Certain Over-The-Counter Medical Products as Qualified Medical Expenses

Section 3702 of the CARES Act did two things. First, it amended to the Code to allow HSAs, Archer medical savings accounts (“Archer MSA”), FSAs, and HRAs to reimburse all over-the-counter medical products. Second, it expanded the definition of qualified medical care to include menstrual care products (i.e., a tampon, pad, liner, cup, sponge, or similar product). While the second change is new, the first change essentially brings back the pre-ACA rules. These changes are permanent and apply to amounts paid after December 31, 2019 for HSAs and Archer MSAs and expenses incurred after December 31, 2019 for FSAs and HRAs. Now employers with employer-sponsored plans must decide whether to allow these changes or to amend their plan documents to limit the coverage of expenses for over-the-counter medical products.

X. Conclusion

During the COVID-19 pandemic, employees are increasingly looking to their employer and to employer-sponsored health plans for relief. FFCRA and the CARES Act, in addition to guidance and regulations and applicable state laws, are providing employers with some resources and flexibility to further help their employees during these unprecedented times. Nonetheless, the laws are complicated and, as always, employers may want to consider taking steps to ensure that their health and welfare plans remain in compliance with the evolving legal landscape.