By 2009, roughly 30 percent of large employers will have an onsite health care facility, according to research performed jointly by Watson Wyatt and the National Business Group on Health. While these employer-provided onsite facilities serve a useful purpose, many employers and vendors are unaware of the welfare benefit implications they entail.
Today’s onsite health care facilities usually go beyond dispensing bandages and aspirin. Many provide comprehensive medical services to employees and sometimes to spouses and other family members. Yet the employers implementing and paying for these facilities — commonly through a third-party vendor — are often unaware that some of these benefits are considered employer-provided health care and thus are subject to the Employee Retirement Income Security Act (ERISA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA) and the Internal Revenue Code.
In a recent Watson Wyatt survey, 62 percent of the surveyed professionals did not consider the benefits offered through the onsite health center to be subject to ERISA.1 Nearly 60 percent of employers that offered a high-deductible health plan (HDHP) with a health savings account (HSA) did not charge enrollees for onsite health center services, according to the same survey.
Guidance from the government regarding employer-provided health care facilities is scarce and most of it is dated. The IRS recently issued guidance that clarifies the circumstances in which an individual can both contribute to an HSA and receive care from an onsite facility (see Watson Wyatt Insider, August 2008).
Specific requirements and legal considerations depend largely on the scope and recipients of the services offered.
Although onsite health care facilities established by an employer are generally subject to ERISA, an exception allows these facilities to treat minor injuries and illnesses or render first aid for accidents that occur during working hours.
There is also an exemption for a group or group-type insurance program offered by an insurer to employees in which (1) the employer does not contribute to the program, (2) participation is voluntary, (3) the sole functions of the employer are to allow the insurer to publicize the program and to collect premiums through payroll deductions and (4) the employer receives no payment other than reasonable compensation for administrative services.
An onsite facility that is considered an ERISA plan must either be wrapped into the employer’s existing health plan (and its reporting and disclosure) or, for a standalone plan, the employer must file Form 5500 and have a plan document, a summary plan description (SPD) and a summary annual report (SAR).
Under COBRA, ERISA group health plans are required to offer continuation of health care coverage to qualified beneficiaries after qualifying events. Onsite facilities are exempt from COBRA if (1) the health care consists primarily of first aid provided during working hours to treat illnesses or injuries that arise during working hours, (2) the health care is available only to current employees and (3) the employees are not charged.
An onsite facility that is considered a group health plan must comply with COBRA requirements. That means the employer might be required to continue coverage at the facility after a qualified beneficiary has a qualifying event. Additionally, the current IRS position (reflected in the final COBRA regulations) is that an open-enrollment right must be extended under all employer-sponsored plans applicable to similarly situated individuals each year. So, for example, if COBRA applied to onsite facility operations, then each similarly situated electing qualified beneficiary would be eligible to enroll (or re-enroll) in other employer-sponsored health plans each year in addition to the onsite facility.
Like ERISA and COBRA, HIPAA’s portability provisions —including the nondiscrimination rules — do not apply to certain supplemental benefits, such as coverage for onsite health care facilities. Additionally, HIPAA’s special enrollment rights exempt certain onsite facilities. However, the limitations applicable under ERISA and COBRA are also likely to apply to HIPAA’s portability provisions (as all three use essentially the same definition of a health plan). For example, if the onsite facility provides more than first aid, it will likely be considered a group health plan subject to HIPAA’s portability rules.
Onsite facilities that are subject to HIPAA must comply with all of HIPAA’s portability requirements, including the pre-existing condition, special enrollment, creditable coverage and nondiscrimination rules.
Generally, an onsite health center that conducts electronic transactions is subject to HIPAA’s privacy and security rules, which require covered entities to protect certain health information. If a health center is a group health plan under ERISA or integrates any of its operations with a health plan, the center is a covered entity and must comply with HIPAA’s privacy and security rules.
Health savings accounts
The operation of an onsite health care facility that offers more than preventive, accident and other permissible coverage may disqualify an HDHP-covered individual from contributing to an HSA.
Recent IRS guidance gives a safe-harbor example featuring an onsite health facility that provides physicals, immunizations, allergy injections and nonprescription pain relievers, as well as treatment for injuries caused by accidents on the job. Onsite facilities that provide only disregarded coverage, preventive care and these specific benefits will not affect an employee’s HSA eligibility.
If an onsite facility offers significant medical benefits, employees who want to maintain HSA eligibility must pay the fair market value of the care up to the HDHP deductible (the plan can designate payments to apply to the deductible). In some instances, the HDHP may negotiate discounts without affecting participants’ HSA eligibility.
An employer-provided onsite health center and its services are excludable from an employee’s gross income. Additionally, the employer generally can deduct the cost of the health center as a business expense. An employer-provided (self-funded) onsite health care facility cannot discriminate in favor of highly compensated employees without triggering tax consequences for those employees.
1 Watson Wyatt Worldwide, Realizing the Potential of Onsite Health Centers, (2008). Available at http://watsonwyatt.com/research/resrender.asp?id=2008-US-0025&page=1.