Resources & Insights

FAQs on COVID-19 Testing, Health Insurance and Cobra Regulations

March 24, 2020

We’ve received many questions from both employers and employees about COVID-19 and its impact on the workplace. Below are answers to provide general guidance on some of the most frequently asked questions. We will continue to update this guidance as circumstances warrant. 

Are employers required to cover coronavirus (COVID-19) testing in our health plan benefit at no cost to the employee?

Yes. Under the Families First Coronavirus Response Act, COVID-19 testing must be provided free of charge (i.e., without any cost-sharing) to plan participants.

Is the health plan required to offer coverage for testing and treatment?

Yes. This benefit in now included under essential health benefits (EHBs), therefore non-grandfathered health plans must cover this benefit in order to be an ACA-compliant plan. Also, testing must be provided without any cost-sharing to the individual.

Can employer provide free or low cost COVID-19 care/treatment if an employee hasn’t satisfied their High Deductible Health Plan (HDHP) deductible without disqualifying the HDHP/Health Savings Account (HSA)?

Yes. Under IRS Notice 2020-15 , a plan may provide free or reduced copayments for COVID-19 treatment without interfering with HSA eligibility even if a plan participant has not met their deductible. This includes telehealth/telemedicine visits if the visit is specifically related to COVID-19.

Does the IRS Notice 2020-15 exception apply to mental health visits for COVID-19 issues?

Uncertain at this point. Although IRS Notice 2020-15 did not specifically mention treatment for mental health issues as a result of the COVID-19 outbreak, there is a compelling argument to interpret the term “treatment” in a manner that extends to mental health visits that are specifically related to COVID-19. Employers may want to encourage employees to take advantage of an Employee Assistance Program (EAP) to help cope with anxiety or other mental health concerns related to COVID-19.

Will a short-term disability insurance plan cover non-illness self-quarantine work absences as a result of COVID-19?

Probably unlikely. Self-isolation with the ability to perform work would not be a definition of disability in most insurance policy definitions of a payable claim under a disability policy. Individuals can be eligible for disability payments if they are unable to perform the major duties of their job as a result of the COVID-19 illness/injury beyond the short-term disability plan’s elimination period.

Can an employee change their dependent care Flexible Spending Account Dependent Care Assistance Plan because of COVID-19 business interruption or closings?

Yes. Employees can enroll in, increase or decrease DCAP elections as a result of coronavirus-related work-from-home policies or school/daycare shutdowns.

Are there other welfare programs that will provide payments to cover absences (including quarantines and self-isolation) as a result of COVID-19?

Yes, there may be other welfare programs, including federal, state, and local (city-based) programs.

For federal programs: Individuals may be able to receive up to 80 hours of emergency sick paid leave (and/or 12 weeks of FMLA leave) under the Families First Coronavirus Response Act,. Read this alert (DOL) Families First Coronavirus Response Act: Employee Paid Leave Rights for information about these types of paid leaves under Families First Coronavirus Response Act.

For state programs: Some states may provide unemployment benefits (e.g., self-isolation for fear of exposure or to care for a child during a school closure) or disability benefits (e.g., quarantine under a doctor’s order). In some cases, the states have waived the normal elimination period before payments begin. Click here to review State of Colorado COVID-19 Resources

HIPAA and PHI (Protected Health Information)

Can an employer ask employees to alert the organization if employee thinks/believes they’ve been exposed to COVID-19 without violating HIPAA?

It depends. The HIPAA Privacy Rule (about protected health information) will apply only if the health information (e.g., COVID-19 diagnosis) comes out of the employer’s sponsored health plan.

Even if HIPAA may not apply, employers should treat all employee health information with confidentiality and be attentive to state privacy laws which may be more stringent.

Furloughs, Layoffs, Reduction in Hours and COBRA Benefits Eligibility

Furlough vs. Layoff

A furlough is a temporary leave of absence in full-day or weeklong increments. During a furlough, the employees are not paid, but they are still technically employed. When the business reopens to full strength, furloughed employees will become active again.

A layoff is a separation of employment for an indefinite or permanent period of time.

A furlough could be seen as favorable to retain talent and reduce the cost of separation (e.g., payout of vacation balance payout) or future hiring and training.

If a company needs to temporarily furlough or lay off their workforce or a portion of the workforce, can the company keep eligible employees on the group health plan?

As for furloughs, it depends on the circumstances (i.e., the employment relationship still exists but no hours are scheduled).

A furlough might be treated as an approved (non-medical) leave of absence. If the ERISA plan document allows employees to take an approved (non-medical) leave of absence and still be covered for a certain time period (e.g., 12 weeks), then the furloughed employee can remain on the health benefit plan as an active member.

If a furlough is an expected course of action at this time in an organization, employers can amend their ERISA plan document to add this provision on a prospective basis.

If employees are on standby (or on-call) mode, it might be possible to assign them hours of service for the sole purposes of Affordable Care Act benefit eligibility. Employees who are locked in for benefits during their stability period should continue to be eligible for coverage regardless of hours worked.

If none of the scenarios above apply, then employers may opt to help pay for the employee’s COBRA continuation coverage.

This is not the case for layoffs, however, because the employment relationship has been terminated. Once that happens, the former employees can only stay on the employer’s group health plan by electing COBRA continuation coverage. Individuals may obtain coverage in the marketplace as an alternative.

Can an employee drop health insurance coverage if their hours were reduced from 30 to 20 hours per week?

It depends on the scenario. Employees can drop coverage if the reduction of hours results in a loss of eligibility under the terms of the health plan. For example, if the minimum threshold to qualify for plan eligibility is 30 hours/week, then the employee must be dropped from the plan and offered COBRA continuation coverage.

They also can drop coverage if the employee’s reduction of hours is still above the hours-of-service requirement to be eligible to participate in the plan, but the plan adopted an amendment pursuant to IRS Notice 2014-55 which allows individuals to drop the plan mid-year in order to obtain marketplace coverage instead.

They cannot drop coverage, however, if the employee’s reduction of hours is still above the hours-of-service requirement to be eligible to participate in the plan and no plan amendment was adopted pursuant to IRS Notice 2014-55 “Additional Permitted Election Changes for Health Coverage under § 125 Cafeteria Plans.”

If a reduction in hours is a desirable feature, employers can amend their ERISA plan document to add this provision on a prospective basis.

Can employees drop coverage if their share of premiums is no longer affordable to them as a result of a reduction of work hours?

No. Unfortunately, the reduced hours/pay would probably not count as a significant cost increase under Section 125 of the Internal Revenue Code (if the cost of the coverage itself has not increased).

Employer may consider amending their ERISA plan document to add this provision from IRS Notice 2014-55 (mentioned above) on a prospective basis. This would allow employees to drop coverage mid-year regardless of the cost of the employer coverage. However, employees should be aware that some states require their residents to maintain qualifying health coverage or pay a state tax penalty

Can an employer pay for a former or current employee’s COBRA coverage?*

Yes, an employer can pay all or part of a former or current employee’s COBRA premiums. Employers may do so as a means to assist an employee during a merger, acquisition, layoff, termination, temporary or permanent disability, or retirement, or as part of a recruitment strategy. If an employer chooses to implement a practice of paying COBRA premiums, below are several ways to process these payments:

  • COBRA premiums may be paid to the employee, and the employee would pay the insurance company directly. Since there is no guarantee that the employee will use the funds to pay the premiums, the funds are considered wages and subject to applicable taxes.
  • An employer may reimburse premium payments the employee made directly to the insurance company. The employee must provide the employer with documentation verifying that payments to the insurer were made for the payments to be nontaxable and excluded from wages.
  • An employer may pay the premiums directly to the insurance company. These funds are nontaxable to the employee and excluded from wages.
  • An employer may provide funds for premiums under a severance plan. If the employer deducts the premiums from the severance pay and pays the insurer directly, the funds are excluded from wages and are nontaxable. If the employee receives the funds and can provide supporting documentation of the payment to the insurer, the funds are also nontaxable. If there is no verification that the employee used the funds to pay for the premiums, the amounts are included in wages and are taxable.

According to the IRS Employer’s Tax Guide to Fringe Benefits, “the exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee’s separation is permanent or temporary.” Additional information on this topic can be found in an April 24, 2006, IRS Information Letter.

Paying COBRA premiums may benefit the employee and employer but may also raise some issues. For example:

  • Paying the premiums for a new employee may create a new and separate plan. If the new employee terminates employment during the period of this coverage, the employee may be eligible for COBRA under the new employer’s plan.
  • An employer may agree to pay COBRA premiums directly to the insurer under a severance plan. If payments are untimely and COBRA is canceled, the former employee may claim a breach of contract.
  • If an employer agrees to pay the full COBRA premium for a former employee, the premium may increase if the employee becomes eligible for a disability extension.
  • Nondiscrimination rules under the Internal Revenue Code apply to self-insured plans, and payments made only to highly compensated individuals under self-insured plans may be taxable. Pending the release of guidance under the Patient Protection and Affordable Care Act (PPACA), nondiscrimination rules will apply to all group health plans. Once implemented, failure to comply may result in an excise tax, civil money penalty or civil action against an employer.

Paying COBRA premiums without clear communication of the arrangements may open the organization to liability; therefore, an employer may want to consult with legal counsel for guidance.

* Source: Society for Human Resource Management

Want to Learn More?: FAQs on COBRA Continuation from DOL

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