By Stephen Lucke, Melinda Maher and Alan Iverson

Law360 (March 27, 2020, 5:42 PM EDT )

Stephen Lucke

Melinda Maher

Alan Iverson

Many private employers that provide health coverage now face issues for employees who incur medical expenses for coronavirus testing and treatment. The Employee Retirement Income Security Act governs health plans that private employers sponsor for their employees. Employers may self-fund those health plans, or they may purchase a health insurance policy that will pay and administer benefits due under the plan.

Generally, health plans cover medical expenses associated with coronavirus testing and treatment. But under those plans, most employees bear some responsibility for those expenses — usually in the form of a deductible, co-insurance and copays (out of pocket costs). In addition to copays and coinsurance, many deductibles can extend into the thousands of dollars.

Although the cost of coronavirus testing is modest, treatment could cost tens of thousands of dollars. Thus, employee costs are potentially significant, especially for those in high-deductible health plans (deductibles of at least $1,400 for individuals and $2,800 for families). One recent study, for example, estimated that 26% of employees in high-deductible health plans have a deductible of at least $3,000, and deductibles for others can be even higher.[1]

In response to the pandemic, the government has rushed to provide relief to employees. On March 11, President Donald Trump met with the nation's largest health insurers and announced that they had committed to waiving out of pocket costs for coronavirus testing.[2] Subsequently, on March 18, Congress passed the Families First Coronavirus Response Act.[3]

The act requires all employee benefit health plans, whether insured or self-funded, to pay the cost of coronavirus testing and associated office visits. The act also prohibits plans from imposing any cost-sharing obligations on plan participants and from enforcing prior authorization or other medical management requirements.

Although this legislation reduces barriers to testing, it does not address the more substantial expenses associated with treatment. Removing one obstacle to such coverage, the IRS issued guidance that insurers and self-funded plans that voluntarily waive out of pocket costs would not jeopardize the tax-qualified status of health savings accounts offered in tandem with high-deductible health plans.[4]

Further, state regulators have urged health insurers to cover the cost of treatment and are actively seeking to mandate such coverage.[5] The outcome of these initiatives will likely determine whether insured plans participants will share in the cost of their coronavirus treatment.

Self-funded ERISA plans, however, may have more choices. Although they are exempt from state regulation, they face pressure from regulators, and even employees, to waive cost-sharing for treatment. Also, because insurers often serve as third-party administrators for self-funded plans and administer them the same as insured plans, self-funded plans may find themselves covering coronavirus treatment unless they affirmatively opt out. 

Accordingly, private employer sponsors of self-funded plans should coordinate with third-party administrators regarding coverage of coronavirus treatment and — given the potential exposure for covering benefits for which premiums were not paid — should proceed thoughtfully.

As plan sponsors or fiduciaries, employers may retain residual or final authority over plan administration and therefore have the responsibility to ensure that the plan is administered in accordance with its terms. If they depart from the written terms of the plan and waive cost-sharing provisions, in particular for coronavirus treatment, employers should consult with counsel about whether it is appropriate to amend or modify their plans, as well as communicate that coverage to participants.

Employers should also consider the potential consequences that waivers of cost-sharing provisions may have on stop-loss coverage. Notably, many self-funded plans rely on stop-loss carriers to pay or reimburse the plan for claims which, either for an individual or aggregated across the plan, reach a certain level, and the carrier may argue that it is required to pay only when the expense is covered under the underlying plan.

The cost of treatment for employees in intensive care due to the coronavirus could be in the tens of thousands of dollars, and in grave circumstances (like a widespread outbreak of the coronavirus in one workplace), it is possible that not only an individual, but also an aggregate, attachment point might be triggered under a stop-loss policy. For these reasons, the provisions of any stop-loss policy should be consulted carefully when making changes to an underlying self-funded health plan, and often it is best to obtain written agreement from the stop-loss carrier as to any changes to the plan.

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Stephen Lucke and Melinda Maher are partners, and Alan Iverson is an associate at Dorsey & Whitney LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Employer Health Benefits: 2019 Annual Survey, Kaiser Family Foundation (Sept. 2019), http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2019.

[2] Remarks by President Trump, The White House (Mar. 11, 2020), https://www.whitehouse.gov/briefings-statements/remarks-president-trump-address-nation/.

[3] Public Law No. 116-127,available a thttps://www.congress.gov/bill/116th-congress/house-bill/6201/text.

[4]  Notice 2020-15, Internal Revenue Service (Mar. 11, 2020), https://www.irs.gov/pub/irs-drop/n-20-15.pdf.

[5] See, e.g., Reed Abelson and Sarah Kliff,Waive Fees for Coronavirus Tests and Treatment, Health Experts Urge, N.Y. Times (Mar. 3, 2020), https://www.nytimes.com/2020/03/03/health/coronavirus-tests-uninsured.html.

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