Telemedicine Arrangements: Beware of Inadvertently Dialing Up An Excise Tax
A growing number of employers are adding telemedicine arrangements to their overall benefits package. The reports we are receiving from employers and participants alike are that these programs are both popular and beneficial. Unfortunately, there is a broad array of legal pitfalls dotting the telemedicine landscape. Employers who fail to structure their offerings in just the right way could find themselves on the hook for significant excise taxes of $100/day per participant. Moreover, depending on how the program is designed, participants enrolled in both a telemedicine arrangement and a high deductible health care plan may be precluded from making (or receiving) contributions to their Health Savings Account. It is critical, therefore, that employers proceed with caution.
To view this Alert and Memorandum in PDF, click here.
The Memorandum provides an overview of the legal hazards that confront employers wishing to offer telemedicine plans as part of their employee benefit package. The Memorandum is a condensed version of an article that Brad Schlozman, a partner in our office, recently wrote for Bloomberg BNA. For those interested, the Bloomberg article is available at this link.
I. – Potential Imposition of Excise Taxes Under the Affordable Care Act
The gist of the problem is that a telemedicine program is, by definition, a “group health plan” under ERISA, the Internal Revenue Code, and the Public Health Service Act. Unless it is properly structured, the telemedicine group health plan will not satisfy all of the market reform requirements (e.g., the prohibition on annual and lifetime limits, the prohibition on cost sharing for preventive health services, etc.) of the Affordable Care Act (“ACA”), which in turn could trigger enormous excise taxes.
In an effort to avoid the market reform requirements, some telemedicine providers have sought to characterize their plans as an “employee assistance program” (“EAP”). An EAP is a HIPAA-excepted benefit and is thus exempt from the ACA’s market reform mandates. But characterizing a telemedicine arrangement as an EAP is a dubious notion at best. If the plan has any chance at being properly considered an EAP, it must be completely free to employees. No premium, deductible, co-payment, or any other cost sharing would be permitted. Even if it is free, though, we are very skeptical that the EAP label fits at all.
If the telemedicine plan cannot be legitimately treated as an EAP, another possible fix to the market reform requirements would be to integrate the telemedicine arrangement with the employer’s major medical plan. Because the major medical plan presumably satisfies all of the ACA’s market reform mandates, the concern over excise taxes largely vanishes. The problem we often see, however, is that the employer makes the telemedicine program available to employees who are not participating in, or even eligible for, the medical plan. Some employers also give employees who are enrolled in the medical plan the opportunity to opt out of the telemedicine component (by, for example, not paying the extra premium associated with the telemedicine plan). This will not work. If participants in the medical plan can decline coverage in the telemedicine plan, then the plans are not integrated.
II. – Potential Impact of Telemedicine Arrangement on
Health Savings Account Contributions
Even if ACA excise taxes can be avoided, telemedicine plans can still be problematic in that they are likely incompatible with a Health Savings Account (“HSA”). In order to be eligible to contribute to an HSA during any particular month of the year, an individual must be covered under a high deductible health plan (“HDHP”) as of the first day of that month. In addition, with only a handful of narrow exceptions, the individual cannot have any coverage under a non-HDHP that provides benefits for medical care covered by the HDHP. The IRS has clarified this prohibition to mean that any benefits under the non-HDHP coverage cannot kick in until after the individual has met the HDHP’s deductible. Depending on the nature of the telemedicine plan, therefore, participants may be precluded from contributing to an HSA.
Some employers have questioned whether integrating a telemedicine arrangement with their HDHP will make the joint plan compatible with HSA contributions. As noted earlier, this integration does allow the employer to avoid imposition of excise taxes for failure to adhere to all of the ACA market reforms. HSA compatibility, however, is a different story. Unless the telemedicine plan can be characterized as an EAP or somehow limited to providing preventive services, it is hard to see how integrating the telemedicine plan with the HDHP negates the problem of disqualifying coverage. Absent such carve-outs, the telemedicine program would be providing non-preventive service medical care coverage before the participant’s HDHP’s deductible had been satisfied.
This situation creates a serious dilemma for employers and employees alike. If the non-HDHP telemedicine coverage cannot be properly characterized as an EAP, then any individual covered under both the HDHP and the telemedicine plan will be unable to contribute (or have contributions made on his/her behalf) to an HSA. Meanwhile, if improper contributions are made to the HSA, the HSA holder may be subject to an excise tax of 6% of the amount of the excess contribution.
III. – Conclusion
In short, while telemedicine arrangements may well yield significant benefits for both sponsoring employers and participants, fitting these plans into the highly complex regulatory environment governing employer-sponsored health care can be a tricky endeavor. These are unchartered waters, with potential dangers lurking behind every bend. It is essential, therefore, that employers tread carefully.
If you have any questions regarding telemedicine arrangements or, more generally, regarding the impact of health care reform on employers, please feel free to call Eric Namee, Brad Schlozman, or Steven Smith at (316) 267-2000.