New Coronavirus Legislation and Its Impact on Health Plans

With the outbreak of the 2019 novel Coronavirus (the “Coronavirus”) and the illness it can cause (“COVID-19”), Congress has now enacted three major “phases” of legislation. A “phase four” bill is also being promoted by Democrats (and some Republicans). Below we discuss these new laws and their impact on health insurers, plan sponsors and third party administrators (“TPAs”).

“Phase One”: Coronavirus Appropriations Act

The first law enacted by Congress in response to the Coronavirus was the Coronavirus Preparedness and Response Supplemental Appropriations Act 2020, which was signed into law on March 6, 2020. The law did not have a significant impact on health plans, plan sponsors and TPAs.

“Phase Two”: FFCRA

The next phase in Coronavirus legislation was the Families First Coronavirus Response Act (“FFCRA”), which was signed into law on March 18, 2020. The FFCRA had many important new rules on paid leave. Those are detailed in a separate Quarles & Brady alert, which can be found here. FFCRA contained some changes with respect to health plans. The main changes and some questions that arose from them are as follows:

Coverage of Coronavirus Testing
Under the FFCRA, nearly all group health plans and insurers must cover in vitro diagnostic products related to Coronavirus testing for the duration of the “emergency period” specified by the federal government. The insurer and plan cannot impose any “cost-sharing” requirements, including deductibles, copayments or coinsurance. In addition, the insurer and plan cannot impose any prior authorization or “other medical management requirements” for such testing.

• Can We Limit Coverage to In-Network Providers Only? Many insurers and health plans encourage enrollees to obtain services in-network, whenever possible. Sometimes services are only covered if they are performed in-network and no out-of-network benefits are available. Or out-of-network services may be covered, but at a lesser coverage rate. This preference for in-network benefits (or complete exclusion of out-of-network providers) may be a “medical management” requirement. It is not clear whether such provisions would violate the FFCRA. Insurers may also face pressure from State Departments of Insurance to provide generous coverage for Coronavirus testing, even if such pressure is framed as a “request” rather than a “mandate”.
• Does the FFCRA Also Require “Treatment”? No, the FFCRA does not require “treatment” of COVID-19, only Coronavirus “testing”; however, many plans and policies likely cover medically necessary services, such as COVID-19 treatment. However, those plans and policies typically would not mention “Coronavirus” or “COVID-19” by name. This may lead to confusion among enrollees about whether treatment (and testing) is covered. We expect many insurers and plan sponsors may want to communicate with enrollees what is covered.
• Will Providing Free COVID-19 Testing Cause Us to Lose HDHP Status? Many plan sponsors offer a high-deductible health plan (“HDHP”). An HDHP generally allows an enrollee to contribute to a health savings account (“HSA”). However, an HDHP is limited in the benefits that it can provide before an enrollee satisfies the HDHP’s deductible. Will providing Coronavirus testing or COVID-19 treatment, before the enrollee satisfies the HDHP’s deductible, cause the plan to lose its HDHP status?
  No. In Internal Revenue Service (“IRS”) Notice 2020-15, the IRS stated that a plan that provides “benefits associated with testing for and treatment of COVID-19” will not cause the plan to lose its HDHP status. The IRS did not put any apparent limit on the coverage. It stated that “all medical care services received and items purchased associated with testing for and treatment of COVID-19” can be provided before the enrollee satisfies the HDHP’s deductible. This is very welcome relief for plan sponsors and insurers.
• When Is the FFCRA Testing Requirement Effective? Likely March 18, 2020. There are some other “effective date” references in the FFCRA, but those seem to apply to other provisions of the FFCRA, like paid leave requirements.
• Must the Plan or Policy be Amended to Reflect This New Requirement? Technically yes. It is possible that a plan or policy will contain a “catch-all” provision which automatically includes any legally-required coverage, and many state laws deem a policy to provide coverage mandated by law. If the plan or policy does not contain such a catch-all provision, the plan or policy may need to be updated at some point, perhaps at renewal, to reflect the change. In addition, the new coverage requirement for Coronavirus testing likely will be a “material modification” which requires a “summary of material modifications” (“SMM”) under ERISA. Thus, many plan sponsors and insurers will likely explain Coronavirus testing and COVID-19 treatment as part of an SMM which is distributed.

Tax Credit for Health Plan Expenses Under the FFCRA
As noted in a prior Quarles & Brady alert, the FFCRA provides for certain tax credits for paid sick leave and paid family leave. In addition, the credit is “increased” by the employer’s “qualified health plan expenses,” (“QHPEs”) which are “properly allocable” to the qualified sick leave / family leave wages for which the credit is allowed. Exactly how this works is poorly defined under the FFCRA. But new IRS Frequently Asked Questions (“FAQs”) from March 31 provide important clarifications.

• What are QHPEs? The FFCRA simply provides that “qualified health plan expenses” mean amounts “paid or incurred by the employer” to “provide and maintain” a group health plan, to the extent that such amounts are excluded from the gross of income of employees under Code Section 106(a). This is a broad definition and would seem to include most medical expenses under a health plan. The new IRS FAQs provide the following additional guidance.
• Employer and Employee Costs (IRS FAQ #31). QHPEs include both the employer contributions and the pre-tax employee contributions toward the cost of a health plan or insurance policy. Interestingly, QHPEs do not include amounts that the employee paid with after-tax contributions. That would seem to exclude most COBRA contributions, which are usually (but not always) paid on a post-tax basis.
• Applies to Multiple Plans (IRS FAQ #32). Many employers sponsor multiple health plans (such as a medical plan, dental plan, vision plan, health flexible spending account (“Health FSA”) and a health reimbursement arrangement (“HRA”)). All such plans are QHPEs. The plan sponsor would determine the QHPEs separately for each plan. Then, for each plan, the expenses are “allocated” to the employees who participate in that plan. If an employee participates in more than one plan, the allocated expenses of each plan in which the employee participates are aggregated for that employee.
• Allocated QHPEs for a Fully-Insured Health Plan (IRS FAQ #33). An employer may use “any reasonable method” to determine and allocate QHPEs for a fully-insured plan. Options include, but apparently are not limited to, using: (1) the COBRA applicable premium for the employee typically available from the insurer; (2) one average premium rate for all employees; or (3) a substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage.
• QHPEs Can Be “Allocated” on a Day-by-Day Basis: Fully-Insured Plan Example (IRS FAQ #33). The IRS FAQs provide an example of allocating QHPEs on a day-by-day basis for a fully-insured health plan. The example assumes that the employer uses “one average premium rate for all employees”. If so, the amount of the tax credit which the employer can claim for “each day an employee is covered by the insured group health plan” is calculated by:
   
  • First, determine the employer’s “overall annual premium” for the employees covered by the policy (for example, $5,200,000 for 400 employees). Divide that amount (e.g., $5,200,000) by the number of employees covered by the policy (e.g., 400) to determine the average annual premium per employee (e.g., $5,200,000 / 400 = $13,000). This provides the “average annual premium per employee”.
     
  • The average annual premium per employee is then divided by the “average number of work days” during the year by all covered employees. For this purpose, days of paid leave (included, apparently, under the FFCRA) are treated as a work day. Doing so provides the “average daily premium per employee.” The IRS notes that a full-year employee working five days per week may be treated as working 52 weeks x 5 days or 260 days. Calculations for part-time and seasonal employees who participate in the plan “should be adjusted as appropriate”, using “any reasonable method” for calculating such work days.
     
  • Continuing with the above example, assume that all 400 employees are full-time employees. The $5,200,000 includes coverage for a mix of self-only and family coverage. The amount also includes both employer and employee contributions. In that case, the “daily average premium rate” would be the result of dividing the $13,000 “average annual premium per employee” by 260 (the number of days an employee works). This equals $50 per employee per day. Thus, $50 is the QHPE allocated to each day of sick leave or family leave per employee.
• Allocating QHPEs for a Self-funded Health Plan (IRS FAQ #34). Allocating QHPEs for a self-funded health plan is different than for a fully-insured health plan. Presumably this is because, for a fully-insured health plan, the premium is known and generally fixed during the plan year. In contrast, for a self-funded health plan, the total amount an employer must pay can be estimated but is not known with certainty until actual claims are processed (which can take months or even years).
   
  • The IRS rules provide flexibility for sponsors of self-funded health plans. They state that a sponsor can use “any reasonable method to determine and allocate the plan expenses”, including: (1) the COBRA applicable premium for the employee; or (2) any reasonable actuarial method to determine the estimated expenses of the plan.
     
  • If the sponsor uses a reasonable actuarial method, then rules similar to the rules for fully-insured plans are used to determine the amount of expenses allocated to an employee. Presumably the same is true if the employer uses the COBRA applicable premium.
• HSAs and Archer MSAs. Some employers contribute to HSAs and Archer Medical Savings Accounts (“Archer MSAs”). QHPEs do not include employer contributions to HSAs or Archer MSAs. Presumably the same is true for employee pre-tax contributions to an HSA which are made through a cafeteria plan. Such contributions are generally viewed, for tax purposes, as employer (not employee) contributions. However, the IRS FAQ is not clear on this point.
• HRAs, ICHRAs, Health FSAs and QSEHRAs. QHPEs include contributions to an HRA, an Individual Coverage HRA (“ICHRA”) and a Health FSA. However, QHPEs do not include contributions to a qualified small employer health reimbursement arrangement (“QSEHRA”). To allocate contributions to an HRA, Health FSA and, it seems, an ICHRA, the employer should use the amount of contributions made on behalf of the particular employee.

Open Questions Still Remain
The new IRS FAQs are very helpful, but they leave some questions unanswered.

• For example, can an employer claim a QHPE with respect to its contributions to a multiemployer plan or an association health plan? How much in administrative costs (and which kinds of costs) can be considered a QHPE? For example, can the administrative fees of third party administrators and pharmacy benefit managers be included? What about stop-loss premiums?
• Also, how precisely must an employer track work days? For example, an employer may not typically track the work days of a salaried employee. The salaried employee may sometimes work weekends. But during the COVID-19 pandemic, the salaried employee may work much less than usual, for an extended period of time (e.g., several weeks). Can the employer simply assume that the employee worked 260 days (52 weeks x 5 days per week)? Or must the employer try to actually track which days the employee performed services? Presumably the former is sufficient and is what most employers will want.

“Phase Three:” CARES Act

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Recovery, and Economic Security Act (the “CARES Act”). The CARES Act contains several notable changes for insurers, plan sponsors and TPAs.

Coronavirus Testing – Updates to FFCRA
As noted above, the FFCRA generally requires coverage of Coronavirus testing. The CARES Act made some tweaks to how the test is defined. Thus, the CARES Act definition – not the FFCRA definition – should be used.

One question which was not clear under the FFCRA was what cost providers and test-kit-makers could charge for the Coronavirus test. The CARES Act sets a rate which the insurer or plan must pay, as follows:

• If the insurer or plan had a negotiated rate with the provider before the Coronavirus public health emergency was declared, that negotiated rate applies while the emergency declaration is still in force.
• If there is no such negotiated rate, the amount the plan or insurer must pay is the amount that “equals the cash price for such service as listed by the provider on a public internet website”, or the price the parties negotiate for less than the cash price.

These provisions are rather ambiguous. For example, which “public internet website” applies? What if the price changes? Is the “controlling price” (our term) the price on the date that the test is administered or the price on the date that the claim is processed by the insurer or plan? If it is the former, how would a plan or insurer track the price and website when the plan or insurer may not know what terms of the website were in effect when the Coronavirus test was administered? Must the provider keep a record of website prices by date (in the event the prices change)? What would be acceptable proof of the website terms in that situation? The provision raises a host of administrative questions.

Preventive Services and Vaccines
Under the Affordable Care Act (“ACA”), many types of preventive care services must be provided on a “free” basis (before the deductible and with no cost-sharing). Normally the process of adding new services as “preventive” can take a few years. The CARES Act tries to “speed up” that process for any “qualifying coronavirus preventive service”. If such a preventive service (such as a vaccine) becomes available, the insurer or plan may need to cover it within 15 business days after the recommendation is made by the relevant governmental committee. The provision does not seem to require any current action by insurers or plan sponsors.

Telehealth Services
In order to establish or contribute to an HSA, an individual generally must have high-deductible health plan (“HDHP”) coverage and no non-HDHP coverage. “Telehealth” services, where the patient and doctor communicate remotely, has grown in popularity. That is especially true with respect to the Coronavirus, where physical distance can be safer than close contact. However, from an HSA perspective, that telehealth benefit could be considered “non-HDHP” coverage if the benefit was provided, at no or reduced cost, before the plan’s deductible was satisfied.

The CARES Act provides relief for “telehealth and other remote care services”. Such coverage can be provided on a pre-deductible basis without the HDHP losing its HSA-favored status. This is generally favorable. However, note that the provision is scheduled to sunset in 2022.

Over-the-Counter Drugs
Under the ACA, over-the-counter drugs generally could not be reimbursed under a health FSA or HRA unless the drug had a prescription associated with it, or was insulin. The CARES Act reverses this rule. We expect that most plan sponsors, TPAs and employees will be pleased with this change. However, note that many Health FSAs and HRAs specifically prohibit coverage of this type of expense. Presumably a plan amendment will be required before the change can be implemented because the CARES Act does not require the change to be made (it is discretionary).

Menstrual Care Products
The CARES Act provides that menstrual care products are covered as “medical care” expenses for health savings account (“HSA”), Health FSA and HRA purposes. Again, we expect that most plan sponsors and employees will welcome this change.

• Part 2 Privacy Rules. Many plan sponsors and TPAs have been reviewing their compliance with certain “Part 2” privacy requirements relating to drug and alcohol coverage, which became effective in February 2020. See the Quarles & Brady alert here: The CARES Act makes some changes in this area, apparently in an effort to harmonize how these “Part 2” privacy rules work with the HIPAA Privacy Rules.
• Fringe Benefit Plans: Student Loans. The CARES Act provides an exclusion from income for employer-paid student loan repayment assistance. The income exclusion is capped at $5,250. Certain requirements, such as having a written program, are likely required. Note that the exclusion only applies through the end of 2020, but it is possible that it will be extended.

“Phase Four”: To Be Determined

Democrats in the House have already announced interest in a “phase four” Coronavirus law. Republican reaction has, so far, been mixed. Any such law would likely contain some health plan provisions. For example, a proposed Democratic bill would require the federal government to subsidize the cost of COBRA coverage.

Both the House and the Senate are currently in recess. Thus, it is not clear when a “phase four” bill would be considered.

For more information or questions about how the coronavirus may impact health plans, please contact your local Quarles & Brady attorney or

• Bill Toman: (608) 283-2434 / william.toman@quarles.com
• Michael Wieber: (414) 277-5109 / michael.wieber@quarles.com