As we approach the January 1, 2014, implementation date for the statewide health insurance Exchanges (or, as the government now calls them, “Marketplaces”), the three agencies charged with implementing the Affordable Care Act (“ACA”) have issued guidance on the ACA’s application to employee assistance programs (“EAPs”). This guidance appears in Q&A-9 of the virtually identical IRS Notice 2013-54 and DOL Technical Release 2013-03. (CMS has joined in this guidance via a one-page concurrence.)
Many employers offer EAPs to their employees ‒ often without cost to an employee and regardless of whether the employee participates in the employer’s comprehensive medical plan. Those employers have already had to wrestle with questions such as whether their EAP constitutes an ERISA welfare plan (for which an Annual Report might be required), whether the value of an employee’s EAP coverage must be reported on the employee’s Form W-2, and whether an employee’s EAP coverage undermines his or her eligibility to make pre-tax contributions to a health savings account (“HSA”).
However, enactment of the ACA has raised additional questions concerning EAPs. For instance:
- Is an EAP subject to the ACA’s market reforms ‒ such as the elimination of lifetime or annual limits on essential health benefits, mandated first-dollar coverage for preventive-care services, and the requirement to issue a summary of benefits and coverage (“SBC”)?
- Will EAP coverage satisfy an employee’s obligation to maintain a minimal level of health coverage (the “individual mandate”)?
- May a large employer (those with 50 or more full-time employees) satisfy one component of the “employer shared responsibility” requirement (also known as the “play-or-pay” rules) by offering an EAP to its full-time employees?
- May an employee who has EAP coverage still receive a federal tax subsidy to purchase more comprehensive health coverage through an Exchange?
The latest guidance answers all of these questions.
The key will be whether an EAP provides “significant benefits in the nature of medical care or treatment.” Through at least the end of 2014, the agencies will view any EAP that does not provide significant medical benefits as an “excepted benefit” ‒ and therefore exempt from most of the ACA rules. Thus, such an EAP need not comply with the prohibition on annual or lifetime limits, need not provide first-dollar coverage for preventive-care services, and need not issue an SBC.
An EAP’s status as an excepted benefit also has implications under both the individual mandate and the employer play-or-pay rules. Such an EAP would not constitute “minimum essential coverage.” As a result, an employee whose only health coverage is such an EAP would fail to satisfy the individual mandate. And a large employer could not avoid even the first-tier play-or-pay penalty ($2,000 for each full-time employee after the first 30 such employees) by offering only such an EAP.
On the other hand, an employee who is covered by an EAP that constitutes an excepted benefit may still qualify for a federal tax subsidy to purchase coverage on an Exchange (assuming the employee satisfies the other conditions for such a subsidy). So an employer need not worry that offering such an EAP at no cost to its employees could actually work to the employees’ detriment.
For all of these reasons, it is important for an employer that sponsors an EAP to determine whether its EAP is in fact an excepted benefit. Although the agencies intend to issue further guidance on what it means for an EAP to provide “significant benefits in the nature of medical care or treatment,” it is hard to predict when that guidance might be forthcoming. Until then, employers are allowed to use a “reasonable, good faith interpretation” of this phrase.
As it happens, this same standard (“significant benefits in the nature of medical care or treatment”) applies in determining whether an employee’s EAP coverage renders the employee ineligible to make pre-tax HSA contributions. In Q&A-10 of IRS Notice 2004-50, the IRS provided three examples of EAPs, none of which was deemed to provide significant medical benefits. Clearly, one or more of the EAPs described in these examples provided a sufficient level of medical care to constitute a welfare plan under the ERISA definition. Accordingly, the agencies seem to be indicating that even an EAP that is subject to ERISA may be an ACA-excepted benefit. Such a conclusion should be welcome news for most EAP sponsors and their employees.