If an employee assistance program (“EAP”) provides counseling for substance abuse, stress, depression, and similar health problems, the Labor Department and IRS regard it as a group health plan. Unless the EAP qualifies for an exception, it will have difficulty complying with the group health plan coverage requirements and other mandates.
Recent guidance from the federal regulatory agencies gives many EAPs a “free pass” for 2014, and creates new compliance options for 2015 and beyond. In order to keep their EAPs in compliance after 2014, employers might need to make design changes or satisfy other new requirements. EAP sponsors should take this opportunity to review their compliance options and develop a compliance strategy.
Compliance Option 1: EAP Exempt From ERISA
If an EAP merely provides a referral (by a person with no special training in mental health or social work) to an outside organization that treats the employee’s condition, the EAP does not provide any medical benefits and thus is not a group health plan. Similarly, an EAP that merely pays the cost of annual drug testing is not a group health plan. EAPs with these limited designs will not be subject to any group health plan mandates or ERISA requirements (such as annual reporting requirements or requirements to provide summary plan descriptions).
Potential Drawbacks of Option 1: Although ERISA-exempt EAPs avoid most regulatory problems, they cannot offer the counseling services that many employers wish to (or are required to) provide to their employees. For example, an employer might wish to offer counseling services as part of its progressive discipline process, so that an employee who fails a drug test is required to receive substance abuse counseling through an EAP. In some states, an employer that tests employees for substance abuse is required to offer counseling to employees who test positive. Counseling services might also be required under a collective bargaining agreement or government contract.
Compliance Option 2: Stand-Alone EAP That Satisfies Health Plan Requirements
If an employer wishes to maintain an EAP that offers counseling services or other medical benefits, the employer could, at least in theory, design the EAP to satisfy the various rules that apply to group health plans. This approach does not seem workable unless the EAP is “grandfathered” for purposes of the Affordable Care Act (“ACA”), however. A non-grandfathered group health plan must cover a long list of preventive services, and no conventional EAP is designed to cover these services.
Potential Drawbacks of Option 2: For many employers, maintaining a grandfathered EAP is not a practical option. In order to be grandfathered, the EAP must have existed without material alteration since March 23, 2010. In addition, the employer was required to notify participants of the plan’s grandfathered status in any participant communications distributed after the 2010 plan year, and it might now be too late for an EAP sponsor to satisfy this notice requirement.
Even if an EAP can qualify as a grandfathered group health plan, it will still be subject to some ACA requirements that might be difficult or expensive for a stand-alone EAP to satisfy, such as the prohibition of annual limits, the requirement to deliver a uniform summary of benefits, and the health coverage reporting requirements. The stand-alone EAP will also be subject to non-ACA requirements for group health plans, such as COBRA continuation coverage rules, ERISA reporting and disclosure requirements, and health claims procedures. In addition, as we explain below, expansive plan-aggregation rules can make it difficult for an employer that maintains an EAP to satisfy the mental health parity requirements, even if the EAP is separate from the employer’s other group health plans.
Automatic coverage. Because EAPs typically do not require employee contributions and are often part of the employer’s progressive discipline process, many EAPs automatically cover almost all employees in the employer’s workforce. This automatic-coverage feature might be problematic. A stand-alone EAP maintained as a grandfathered group health plan will constitute “minimum essential coverage” for purposes of the ACA shared responsibility requirements; but if employees are automatically covered under the EAP, the automatic coverage will not satisfy the requirement that the employer offer minimum essential coverage to at least 95% of full-time employees. The employer can treat minimum essential coverage as an “offer of coverage” for this purpose only if employees have an effective opportunity to decline the coverage at least once a year.
In addition, automatic coverage under the stand-alone EAP will prevent a lower-income employee from receiving premium tax credits for individual coverage purchased on an exchange, even if the employee has no other employer health coverage. The preamble to a proposed premium tax credit regulation published last May states that if employers automatically cover employees under plans that constitute minimum essential coverage but do not provide minimum value, the federal agencies “may treat such arrangements as impermissible interference with an employee’s ability to access premium tax credits.”
Compliance Option 3: EAP Integrated With Group Health Plan
Rather than maintain an EAP as a stand-alone group health plan, an employer may provide employee assistance benefits under the employer’s comprehensive group health plan. Because the employer’s group health plan must satisfy the health plan requirements and coverage mandates in any event, adding EAP benefits to the group health plan does not significantly increase the employer’s compliance burden.
Potential Drawbacks of Option 3: Integrating EAP benefits with a comprehensive group health plan works well for any employee who is eligible for benefits under both arrangements. The difficulty with this approach arises because the EAP typically covers a larger group of employees than the employer’s comprehensive group health plan. As we explained above, an employer might wish to (or might be required to) offer EAP counseling services as part of its progressive discipline process. As a result, employees who are not eligible for comprehensive group health plan coverage, such as part-time or seasonal employees, might be covered by the EAP. For these employees, the employer will not be able to rely on the comprehensive group health plan to comply with the health plan requirements, and the EAP will face most of the compliance problems that affect stand-alone EAPs.
Mental Health Parity Requirements: A different problem might affect employees who are covered both by the EAP and by the comprehensive group health plan. For these employees, the EAP can interfere with the group health plan’s ability to satisfy the mental health parity requirements. A plan that offers both medical/surgical benefits and mental health/substance abuse benefits must ensure that the cost-sharing requirements and treatment limits that apply to mental health and substance abuse benefits are no more restrictive than the predominant requirements and limits that apply to substantially all medical and surgical benefits.
These parity rules make it more difficult to design an EAP as part of a comprehensive group health plan, since the two types of plans often approach cost issues differently. For example, the comprehensive group health plan might provide benefits with relatively few treatment limits, but might impose various cost-sharing requirements on medical and surgical benefits. In contrast, an EAP generally offers benefits with no cost-sharing requirements, but imposes restrictive treatment limits (such as limits on the number of counseling sessions covered). As a result, if the EAP is treated as a group health plan, the EAP might make it difficult to satisfy the mental health parity requirements with respect to employees who are also covered under a comprehensive group health plan.
This problem affects stand-alone EAPs as well as EAPs that are formally integrated with a comprehensive group health plan. The regulations interpreting the mental health parity rules impose a very broad aggregation requirement on group health plans. If any individual is eligible to receive coverage for medical/surgical benefits under an “arrangement to provide medical care benefits,” and the same individual is simultaneously eligible to receive coverage for mental health or substance abuse benefits under an entirely different “arrangement” maintained by the same employer, the two arrangements are treated as a single group health plan, and the parity requirements apply to the aggregated benefits.
Compliance Option 4: EAP That Provides Only “Excepted Benefits”
Recent guidance creates a new compliance option for EAPs. An EAP will not be subject to the group health plan mandates, including the ACA rules and the mental health parity requirements, if the EAP provides only “excepted benefits.” Because of the difficulties associated with other options, this option might be the only workable compliance strategy for many EAP sponsors.
Excepted-Benefit Requirements for 2014. Guidance issued last fall, described in our post here, provides that an EAP will be deemed to provide “excepted benefits” at least through 2014 as long as the EAP does not provide “significant benefits in the nature of medical care or treatment.” Employers may make a reasonable, good faith determination whether an EAP meets this requirement.
Although the interim guidance does not explain when an EAP provides significant medical benefits, employers might wish to consider the following guidelines when they make this determination:
- A proposed regulation published in December would amend the excepted-benefit provisions to cover EAPs starting in 2015. The proposed regulation invites comments on the definition of “significant.” The preamble of the proposed regulation asks whether an EAP should be considered to provide significant medical benefits if the EAP “provides no more than 10 outpatient visits for mental health or substance use disorder counseling, an annual wellness checkup, immunizations, and diabetes counseling, with no inpatient care benefits.” Since the preamble implies that these benefits might not be “significant,” employers might use this example as a guide when they make good-faith determinations for 2014.
- IRS Notice 2004-50, Q&A-10, uses the same phrase to identify EAPs that are treated as non-HDHP coverage for purposes of the rules applicable to health savings accounts (“HSAs”). The notice explains that an EAP does not provide “significant benefits in the nature of medical care or treatment” if it offers benefits that consist primarily of free or low-cost confidential short-term counseling—including counseling for substance abuse, alcoholism, mental health or emotional disorders, and dependent care needs—and referral to an outside organization for assistance where appropriate. The preamble of the proposed regulation published in December confirms that an EAP meeting this standard will not provide significant medical benefits for purposes of the excepted-benefit rule.
- IRS Notice 2004-50 also explains that a wellness program does not provide “significant benefits in the nature of medical care or treatment” for purposes of the HSA rules if the wellness program provides a wide range of education and fitness services—including sports and recreation activities, stress management, and health screenings—designed to improve the overall health of employees and prevent illness, where any costs charged to the individual for participating in the services are separate from the individual’s coverage under the health plan. The preamble of the proposed regulation refers to wellness programs that meet these conditions as a type of EAP that satisfies the excepted-benefit standard.
- EAPs are exempt from the Patient-Centered Outcome Research Institute (“PCORI”) fee if they do not provide “significant benefits in the nature of medical care or treatment.” Employers should review any interpretation of this phrase they adopted last July, when the PCORI fee for 2012 was due.
Excepted-Benefit Requirements for 2015 and Beyond. Starting in 2015, the proposed regulation states that an EAP must meet four conditions in order to be an “excepted benefit”:
- No Significant Medical Benefits. The EAP must not offer significant benefits in the nature of medical care or treatment. As explained above, the agencies have requested comments on the definition of “significant.”
- No Coordination With Health Plan. Benefits under the EAP may not be coordinated with benefits under the employer’s comprehensive group health plan. An EAP meets this condition if (a) a participant is not required to exhaust benefits under the EAP in order to qualify for benefits under the group health plan, (b) a participant’s eligibility for benefits under the EAP is not dependent on the participant’s eligibility for benefits under the group health plan, and (c) benefits under the EAP are not financed by the group health plan.
- No Employee Contributions. The EAP may not require employees to pay premiums or make contributions in order to participate.
- No Cost-Sharing. The EAP may not impose cost-sharing requirements on participants.
Mental Health Gatekeeper. Some EAPs formerly served as “gatekeepers” for mental health and substance abuse benefits under an employer’s comprehensive group health plan: an employee was required to exhaust the limited counseling benefits under the EAP before applying for more extensive benefits under the group health plan. An interim final regulation interpreting the mental health parity requirements has prohibited this practice since 2011 unless a similar gatekeeper requirement applies to medical/surgical benefits under the group health plan; and this restriction was preserved in the final mental health parity regulation issued last fall. Although an excepted-benefit EAP is not subject to the mental health parity requirements—including the gatekeeper prohibition—the EAP will not qualify as an excepted benefit if an employee must exhaust EAP benefits before receiving benefits under a group health plan. As a result, employers will not be able to use EAPs as mental health gatekeepers in most cases, whether or not the EAPs provide only excepted benefits.
Minimum Essential Coverage. A proposed regulation interpreting the individual mandate, described in our post here, confirms that any plan or program that offers coverage solely for “excepted benefits” will not constitute “minimum essential coverage” for purposes of the ACA shared responsibility requirements. Accordingly, if an employer offers coverage under an EAP that qualifies as an excepted benefit, the employer may not rely on the EAP to satisfy the requirement that it offer minimum essential coverage to at least 95% of its full-time employees, and individual employees cannot rely on their EAP coverage to satisfy their obligation to obtain minimum essential coverage. The fact that a lower-income employee receives excepted-benefit coverage under an EAP will not disqualify the employee from receiving premium tax credits if the employee purchases individual health coverage on an exchange. The employer is not required to allow the employee to opt out of excepted-benefit coverage, and this fact might make it easier to administer the EAP as an integral part of the employer’s progressive discipline process.
Other Requirements. Although an EAP that provides only excepted benefits is exempt from the HIPAA and ACA coverage mandates, it is not exempt from all group health plan requirements. For example, if the EAP provides medical benefits—even though the benefits are not significant—it might be subject to the Form 5500 annual reporting requirement, the ERISA claims procedures, the requirement to provide a summary plan description, the HIPAA privacy and data security requirements, or the COBRA continuation coverage rules, unless another exception applies. Accordingly, EAP sponsors that wish to rely on the new excepted-benefit rule should confirm that their EAPs continue to comply with all applicable health plan requirements.