What is an employee assistance program anyway?
That question plagued me when I wrote last month’s column outlining some initial thoughts regarding the political and legal implications of the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization, which overturned Roe v. Wade. At the end of that column, I briefly addressed the most pressing post-Dobbs question that continues to dominate discussion in the benefits space: what are the ways in which an employer may structure a benefit that pays for an employee who resides in a state that has barred abortions to travel to a state that has not made abortion illegal to access that service? After discussing potential state law hurdles to providing such benefits, I concluded with a brief overview of the permissibility under federal law of offering such benefits through the employer’s group health plan or through an integrated health reimbursement account.
With respect to the ways in which an employer may be able to offer the benefit more directly (not as part of a traditional group health plan or HRA), however, I punted, noting only that “[t]here also may be ways to structure the benefit as part of an employee assistance program.”
I now want to take a deeper dive into a potential EAP solution. But first, let’s look at the basic tax treatment here. Section 105 of the Internal Revenue Code dictates that amounts paid by an employer to cover medical expenses for an employee (or an employee’s spouse or dependent) are excluded from the employee’s income…“if such amounts are paid, directly or indirectly, to the taxpayer to reimburse the taxpayer for expenses incurred by him for the medical care (as defined in IRC section 213(d)) of the taxpayer, his spouse, his dependents[…]”
The Internal Revenue Service has held that legally performed abortions are a form of “medical care” and that “[a]mounts expended for illegal operations or treatments are not deductible.”
IRS regulations effectuating IRC Section 213(d) further clarify that “medical care” includes, in addition to direct treatment, “transportation primarily for and essential to medical care.” Those regulations also limit the scope of the medical-related travel expense that can be reimbursed without having to include those expenditures in the employee’s taxable income:
Expenses paid for transportation primarily for and essential to the rendition of the medical care are expenses paid for medical care. However, an amount allowable as a deduction for “transportation primarily for and essential to medical care” shall not include the cost of any meals and lodging while away from home receiving medical treatment. For example, if a doctor prescribes that a taxpayer go to a warm climate in order to alleviate a specific chronic ailment, the cost of meals and lodging while there would not be deductible. On the other hand, if the travel is undertaken merely for the general improvement of a taxpayer’s health, neither the cost of transportation nor the cost of meals and lodging would be deductible. If a doctor prescribes an operation or other medical care, and the taxpayer chooses for purely personal considerations to travel to another locality (such as a resort area) for the operation or the other medical care, neither the cost of transportation nor the cost of meals and lodging (except where paid as part of a hospital bill) is deductible.
As outlined in IRS Publication 502 (2021), Medical and Dental Expenses, deductible medical transportation expenses include:
- Bus, taxi, train, airplane or ambulance fares
- Out-of-pocket automobile expenses (not including depreciation, insurance, general repair and maintenance costs), which may be assumed to be $0.16 per mile in lieu of keeping records of actual expenses
- “Transportation expenses of a parent who must go with a child who needs medical care” or “of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone.”
Now let’s evaluate these medical expense tax rules through the lens of EAPs. A few preliminary points.
First, EAPs are really a market creation; there is no legal authority of which I am aware that established an EAP framework.
Second, any employer payment for or underwriting of medical benefits, regardless of whether those benefits are packaged in something you call an EAP or otherwise labeled, subjects those benefits to most Employee Retirement Income Security Act (ERISA) requirements (including, for example, requiring a Summary of Plan Benefits and extending a limited COBRA continuation of coverage right to former employees). But “excepted benefits” are exempted from having to comply with many of the Affordable Care Act medical plan requirements (such as offering all “essential benefits” and not imposing any annual or lifetime expenditure limitations on the use of such benefits).
The first—and, to my knowledge, only—federal regulatory recognition of EAPs appears to be in regulations that were promulgated by the IRS and the Departments of Labor and Health & Human Services in 2014 under which the agencies jointly declared that “[b]enefits provided under employee assistance programs” are “excepted benefits” if they satisfy four requirements.
1. “The program does not provide significant benefits in the nature of medical care. For this purpose, the amount, scope and duration of covered services are taken into account.”
2. “The benefits under the employee assistance program are not coordinated with benefits under another group health plan”; i.e., the benefit cannot be coordinated with or conditioned upon participation in another group health plan.
3. “No employee premiums or contributions are required as a condition of participation in the employee assistance program.”
4. “There is no cost sharing under the” program.
If any of the four conditions are not satisfied, then the EAP is not an “excepted benefit” and the full range of ACA requirements apply.
The first condition prohibiting “significant” medical benefits is the most uncertain. Although it is clear from the existing IRS jurisprudence that travel expenses that are essential to accessing medical treatments that are not available in an individual’s home state are “expenses incurred … for medical care,” the critical question here is whether the offering of such benefits on a stand-alone basis is “significant” enough to convert an EAP (or other vehicle through which such a benefit is offered) into a full-fledged group health plan.
And the answer to that question is, I don’t know. I think the better argument is that the payment of medical-related travel expenses is not a “significant benefit in the nature of medical care” because the travel is ancillary to receiving the care and is not the care itself, but the IRS rules and cases allowing travel expenses to be treated as “medical care” have not previously been required to grapple with that distinction.
We are in the process of asking the agencies to clarify if the payment of abortion-related travel expenses may be treated as “exempted benefits” under the applicable EAP test regardless of whether they are being offered through an EAP or otherwise.
More to come, I hope.