Several agencies within the federal government recently announced that their employees must be vaccinated against COVID-19, and employees who refuse to be vaccinated must undergo weekly COVID-19 testing. Following that announcement, many private companies turned to the question of whether to adopt a similar policy. These policies can raise issues both under employment law (for example: wage-and-hour and reasonable accommodation issues) and under employee benefits law. The employment law issues are often significant enough to drive the design of these policies. This article discusses only the employee benefits issues.
As a general rule, when an employer provides or pays for its employees' medical care, the employer has created an employee benefit plan and, more specifically, an employer group health plan. But there are some exceptions. For example, courts have long held that there is no plan if there is no "ongoing administrative scheme." As a result, annual flu shots and health fairs are generally not considered to be plans. A weekly COVID-19 testing program, however, can be expected to involve ongoing administration and therefore is likely to be a plan.
An employer group health plan must either comply with the Affordable Care Act (ACA) by, among other things, covering a long list of "preventive services," or be exempt from the ACA by providing only "excepted benefits." If a plan fails to comply with the ACA and fails to provide only excepted benefits, the penalties are substantial. A weekly COVID-19 testing program does not comply with the ACA's requirements for preventive services. In order to avoid penalties, then, employers will want their testing program to provide only excepted benefits. There are two categories of excepted benefits relevant here: on-site medical clinics and employee assistance programs (EAPs).
On-Site Medical Clinics. If an employer's weekly testing program is offered at an on-site medical clinic, the program provides excepted benefits. There are no regulations or other guidance documents explaining what constitutes an on-site medical clinic.
EAPs. In order for an employer's weekly testing program to be an EAP, it must meet all five of the following requirements.
- The program must not require employees to enroll in another health plan before being tested.
- The program must not require employees to use or exhaust benefits under any other health plan before being tested.
- The program must not provide "significant benefits in the nature of medical care." Whether benefits are "significant" depends on the type of benefits provided, as well as the amount, scope, and duration of the benefits. Under FAQs issued by the Departments of Labor, Treasury, and Health and Human Services, an EAP that complies with the other three requirements will not be deemed to provide significant benefits in the nature of medical care "solely because" it offers COVID-19 testing while a public health emergency declaration or national emergency declaration is in place. The FAQs do not say whether there is some limit to COVID-19 testing that can be covered by an EAP, and the Departments have not provided other guidance on the issue. In our view and in the view of many benefits practitioners, the Departments are unlikely to challenge weekly tests as "significant benefits" that disqualify an EAP. However, this is a grey area and there is no definitive answer.
- The program must not require employees to pay any premiums or contributions for the program.
- There must be no cost-sharing under the program. This fifth requirement has some practical implications. Below, we discussion the options it allows and one important limit that it imposes.
Options. Suppose an employer with a weekly COVID-19 testing program wants the program to be an EAP. There are several ways that the employer can structure the program to comply with the no cost-sharing requirement.
- The employer can contract with a provider who will perform the testing at the worksite, with the employer paying the cost.
- The employer can require employees to obtain a certain type of test from a specific provider, such as a pharmacy chain or heath care system. The employer can reimburse the employees for the cost or can be billed directly by the provider. Identifying a specific provider gives the employer an opportunity to negotiate a favorable rate with that provider.
- The employer can allow employees to obtain a test at the provider of their choice and reimburse the employee for the full cost. This structure is legally permissible but financially risky (an employee could get a very expensive test), and therefore it is strongly discouraged.
Limits. What if the employer allows employees to obtain a test at the provider of their choice, and agrees to reimburse the employee up to a specific dollar amount? This structure is problematic. If the cost of the test exceeds the maximum reimbursement amount, the employee will be paying out of pocket, which would ordinarily be considered cost-sharing. An employer might try to argue that testing is widely available for less than the maximum reimbursement amount, and therefore that the program does not require cost-sharing by the employee. This argument is not likely to be successful, and, consequently, the program risks being in violation of the ACA. We would not recommend this structure for a testing program.
In Summary. Confronting the novel medical issues raised by COVID-19 may lead employers to equally novel legal issues, especially in the area of employee benefits. When an employer provides weekly COVID-19 testing for its employees, it is likely creating a group health plan. To avoid penalties for failing to comply with the ACA, the testing can be provided by an employer's on-site medical clinic, or the program can be structured as an EAP. For most private employers, the EAP will be subject to ERISA, which brings with it a number of compliance obligations not addressed here. Employers with questions concerning this article or EAP compliance questions should feel free to contact the authors of this article or any other member of Venable's Employee Benefits and Executive Compensation Group.