In a previous post, we reported on the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization which reversed Roe v. Wade, and renders a woman’s right to make decisions regarding, and seek medical treatment for, an abortion a matter of state law. For employers, Dobbs impacts (i) employer-sponsored group health plan coverage for abortion services in states where abortion is, or becomes, illegal, and (ii) abortion-related travel benefits. Our earlier post focused on coverage of abortion and abortion-related travel services under a group health plan, and related ERISA preemption considerations. This post examines other approaches available to employers seeking to make these benefits available. These include health reimbursement arrangements (“HRAs”), health flexible spending accounts (“health FSAs”), excepted benefit employee assistance plans (“excepted benefit EAPs”), and health savings accounts (“HSAs”).

Abortion services and related travel as tax-favored “medical care”

Abortion and abortion-related travel qualify as “medical care” within the meaning of Internal Revenue Code (“Code”) Section 213(d)(1), which reads, in relevant part:

(d)       Definitions

For purposes of this section—

(1)       The term “medical care” means amounts paid—

(A)       for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,

(B)       for transportation primarily for and essential to medical care referred to in subparagraph (A), …

Treasury regulation Section 1.213-1(e)(1)(ii) specifically provides that medical care does not include expenses for illegal operations or treatment.

Adding an abortion-related travel benefit to an existing group health plan does not affect the plan’s tax-favored treatment, unless the benefit is provided to a highly compensated individual under a discriminatory self-insured plan. Favorable tax treatment is lost, however, when the benefit is provided under an arrangement that also includes benefits not qualifying as medical care. For example, reimbursement for the fair market value of a medical travel benefit under an arrangement that also includes reimbursement for business travel, or other non-medical purposes, would be treated as taxable income and subject to payroll taxes. This trade-off looms large as employers consider the design of travel assistance benefits.

In our previous post, we also raised the issue of whether covering only abortion-related travel under a group health plan would violate the Mental Health Parity and Addiction Equity Act (“MHPAEA”).  Expanding the travel benefit to include travel for any covered service under the plan should avoid this potential problem.  A broad-based travel benefit might also make it easier to avoid violating  a state statute criminalizing the “aiding and abetting” of abortion.

Integral to the design of an abortion travel benefit is the amount of the reimbursement. Group health plans are subject to the Affordable Care Act’s insurance market reforms, which include a ban on annual and lifetime limits on essential health benefits. Abortion and abortion-related services are not, however, essential health benefits. Thus, an abortion travel benefit can be subject to an annual limit or cap.

Where a group health plan already covers, or is amended to cover, abortion-related travel benefits, the Code and applicable treasury regulations impose the following restraints:

• Code Section 213(d)(2) limits amounts paid for lodging while away from home, primarily for, and essential to, medical care in a hospital or equivalent at $50 per night for the covered individual and companion (e.g., the parent of a minor child)

• Reimbursements for travel by automobile are subject to rules governing medical travel reimbursements, which is currently 22 cents per mile

• Meal expenses are not deductible as expenses for medical care unless they are provided at a hospital or similar institution at which the taxpayer, the taxpayer’s spouse, or dependent is receiving medical care. 

In order to qualify for the deduction, the travel must be primarily for and essential to medical care, and not for vacation or recreation, Reimbursements for abortion-related travel that exceed these amounts are gross income and wages and are, as a result, subject to income and payroll taxes.

Optional Benefit Arrangements

• HRAs 

An HRA is a tax-advantaged arrangement that reimburses individuals for qualified health care costs. HRAs must be entirely employer-funded.  HRAs are themselves self-funded group health plans for purposes of the Code’s rules governing discriminatory medical reimbursement plans, and they are also subject to ERISA (with the exception of church and governmental plans). Thus, they must have plan documents, provide summary plan descriptions, have and administer claims procedures, and, unless exempt, file Form 5500s annually (although the program can be wrapped with other health and welfare benefits for documentary purposes). Health care continuation (i.e., COBRA) applies to HRAs where coverage is lost as a result of a qualifying event.  With all HRAs as well as health FSAs, an employee’s participation can interfere with their ability to contribute to an HSA unless the program is designed to comply with applicable out-of-pocket maximums.

• Integrated HRAs

Integrated HRAs require employees to be enrolled in the employer’s group health plan and allow employees to use employer-contributed HRA funds to pay for the costs of health insurance premiums (including COBRA premiums) and/or unreimbursed medical expenses. Employer contributions to an HRA are excluded from an employee’s gross income and wages (hence are not subject to income or payroll taxes). Unused HRA funds can, as a matter of plan design, be rolled over from year to year. While integrated HRAs have no required limits, annual caps are routinely imposed as a matter of plan design. Employers that sponsor a fully insured group health plan are free (subject to the carrier’s underwriting rules) to add an integrated, self-funded HRA. The result is a split-funded arrangement. While split funding is not uncommon, it can double an employer’s PCORI exposure, and it also implicates the HIPAA privacy and security rules.

• EBHRAs 

The excepted benefit HRA (“EBHRA”) was created in a 2019 final regulation issued by the Department of the Treasury, the Department of Labor and the Department of Health and Human Services.  EBHRAs generally must be used for unreimbursed payments of qualifying medical expenses, which include items within the definition of medical care under Code Section 213(d). Employers offering an EBHRA to their employees must offer the benefit alongside employer-sponsored group health insurance, though employees are not required to enroll in the group health plan to receive the EBHRA.  EBHRAs must be made available to all similarly situated employees under the same terms and conditions. Whether employees are similarly situated is determined based on the HIPAA nondiscrimination rules relating to health status. For HIPAA purposes, distinctions among groups of similarly situated participants in a health plan must be based on bona fide employment-based classifications consistent with the employer's usual business practice (e.g., part-time and full-time employees, employees working in different geographic locations, and employees with different dates of hire or lengths of service).  Annual employer contributions to EBHRAs are capped at $1,800, indexed. For 2023, the cap will rise to $1,950. Owing to the cap on reimbursements, EBHRAs might not be well suited to funding abortion-related or other travel for medical care.

• ICHRAs 

Employers that do not offer certain employees group health plan coverage can also consider offering those employees an individual coverage HRA (“ICHRA”).  However, a host of rules apply to ICHRAs, including that any ICHRA participants will need to be enrolled in individual coverage (marketplace or otherwise).  Further, participation could affect eligibility for the premium tax credit if the ICHRA is considered “affordable” for Affordable Care Act purposes.  HRA claims must be substantiated to prove that reimbursements are for eligible medical expenses. Substantiation requires the claimant to submit proof of a qualified expense, which typically includes receipts, invoices, or explanation of benefits (EOB) statements. The submission must include details about the type of service or product, the date of service or sale, and the product or service cost.

• Health FSAs

A health flexible FSA is a type of tax-advantaged account or arrangement that can be used to pay for unreimbursed medical expenses as defined under Code Section 213(d).  While HRAs can be funded only by employer contributions, employees usually fund their own health FSAs through salary reduction. Though not commonplace, employers may make additional contributions. Employee contributions to health FSAs are capped annually. For 2022, the annual contribution limit is $2,850, which is up from $2,750 in the prior year. As with HRAs, health FSAs can interfere with the ability to contribute to a Health Savings Account unless they are designed to comply with applicable out-of-pocket maximums. This is usually accomplished with “post-deductible” or “limited purpose” arrangements.

• Excepted benefit EAPs

Employee assistance plans (or EAPs) typically include short-term substance use disorder or mental health counseling or referral services, as well as financial counseling and legal services. To the extent an EAP provides benefits for medical care, however, employers are (rightly) concerned that the arrangement might be considered group health plan coverage, which would be subject to ACA market reforms. The Departments of Labor, Health and Human Services, and Treasury addressed this concern in a 2015 final regulation, which established excepted benefit EAPs. To qualify as an excepted benefit EAP, an EAP must:

• Not provide significant benefits in the nature of medical care;

• Not require participants in the separate group health plan to exhaust benefits under the EAP (making the EAP a “gatekeeper”) before an individual is eligible for benefits under the other group health plan;

• Not condition eligibility on participation in another group health plan;

• Not require employee premiums or contributions to participate in the EAP;

• Not require cost sharing.

It is the requirement that benefits cannot be “significant benefits in the nature of medical care” that gives us some pause. There is little guidance on this point, nor is it clear whether adding an abortion-related travel benefit to an existing EAP might tip the proverbial scales. Failure to qualify as an excepted benefit would result in the arrangement being regulated as a group health plan for ACA and other purposes. As in the case of other tax-favored health programs, substantiation is required, and despite that the benefit is excepted for HIPAA purposes, these plans nevertheless provide some benefits in the nature of medical care, which means that participants must provide COBRA rights in the case of a qualifying event.

Despite the uncertainty, excepted benefit EAPs for the purpose of providing abortion-related travel benefits are already being offered by some major carriers.

• Health savings accounts/HSAs

An HSA is a tax-advantaged account created for or by individuals covered under high-deductible health plans (HDHPs) to set aside funds to pay for certain medical expenses. They are mere funding vehicles. As such, they differ from the other arrangements described above. The HSA owner is free to use HSA funds to pay for any qualified medical expenses on a tax-favored basis. Code section 223 defines the term “qualified medical expenses” to include, “with respect to an account beneficiary, amounts paid by such beneficiary for medical care (as defined in section 213(d)) for such individual, the spouse of such individual, and any dependent  . . ..” Thus, an individual may use HSA funds to pay for abortion and abortion-related services on a tax favored basis, unless the expense is for an illegal operation or treatment.  Employers that sponsor an HDHP that is intended to enable contributions to an HSA would be unable to reimburse amounts for abortion-related travel services until the covered employee has satisfied the plan’s out-of-pocket maximums.

Next Steps For Employers

The issues and approaches set out above are of interest to those employers who are weighing their options in the post-Dobbs environment. Each has its own design particularities and administrative challenges. No doubt, benefits consultants and carriers will be rolling out products and services that address this market niche. Some already have. Blue Cross Blue Shield of Massachusetts, for example, now offers a travel rider for their group insurance products. There is, of course, the larger concern over the legality of these products and services in the face of what is anticipated to be a burgeoning number of state laws seeking to bar or even criminalize the effort.