Coronavirus Aid, Relief, and Economic Security Act (Benefit Minute)
On March 27th, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES). This is primarily an economic stimulus package; however, there are certain employee benefit-related items. This issue of the Benefit Minute discusses these items and provides a brief overview of certain other major provisions.
For plan years beginning on or before December 31, 2021, a qualified high deductible health plan (QHDHP) may offer telehealth services without cost sharing, or with lower than fair market value cost sharing (such as a copay) before the minimum QHDHP deductible is met without impacting HSA eligibility. This applies to all telehealth services, not just COVID-19 related services. This change is permissive (except with respect to COVID-19 diagnosis), but will likely be implemented by many fully insured and self-insured group health plans as the significant value of telehealth has been demonstrated during this pandemic.
The requirement that over-the-counter medicines must be prescribed in order to be reimbursed from a healthcare flexible spending account (HCFSA) or health reimbursement arrangement (HRA) or paid for through a health savings account (HSA) has been eliminated. In addition, expenses related to menstrual care products have been added as eligible medical expenses that can be reimbursed from a HCFSA/HRA or paid for through an HSA. This change is effective retroactively to January 1, 2020. For HSAs, no action is required in order for an individual to use HSA funds to pay for these products.
For HRAs that reimburse only deductible expenses related to the underlying health plan, there is no impact. For HCFSAs and for HRAs that reimburse all qualified medical expenses, the plan document will likely have to be amended if the employer wants to permit reimbursement for these products, and this change communicated to participants. The change for a HCFSA, if adopted, generally should not be done retroactively due to section 125 cafeteria plan rules; instead, the employer may choose to implement prospectively (for example, at the beginning of the next plan year).
CARES sets out a specific method for determining the reimbursement rates for COVID-19 diagnostic services. Negotiated rates will apply during the period of the public health emergency if those rates existed prior to the public health emergency being declared. If there is no negotiated rate, the plan will pay the cash price for the service, although a plan can negotiate with providers for a lower amount. The law requires providers to make available the cash price for diagnostic testing on their public website.
In addition, when a vaccine is created that prevents or mitigates COVID-19 that has an A or B rating by the United States Preventive Task Force, or that has in effect a recommendation from the CDC with respect to the individual involved, group health plans must provide coverage for that preventive care, without cost sharing, within 15 days of the recommendation being made.
Finally, CARES permits employers to provide employees with qualifying tax free student loan repayments, as long as they are done through a Section 127 education assistance program and made from March 27, 2020 through December 31, 2020. The student loan repayments can be provided to employees on a tax-free basis, whether applied to interest or principal. Any employer provided student loan payments made prior to March 27th must still be reported as taxable income to employees. Any employee who receives this tax-free benefit cannot claim a deduction on their personal tax return for related student loan interest.
Other Major Provisions
Other major provisions of CARES include:
- Qualified retirement plans – additional flexibility is provided for plan loans; and adds COVID-19 related distributions (not subject to the 10% penalty tax) which can be repaid within a three-year period; and if not repaid, the participant may pay income tax on the distribution ratably over such three-year period.
- Recovery rebates – direct payments (advance tax credits) to individuals with income up to certain limits: $1,200 for single filers with income of $75,000 or less; $2,400 for joint filers with income of $150,000 or less, and $500 for each child who is under age 17 on December 31, 2020. Lesser amounts will be paid for income up to $99,000 for single filers and $198,000 for joint filers.
- Unemployment enhancement – expansion of individuals who are eligible for unemployment to include independent contractors, self-employed, and those who are unemployed and unable to work due to COVID-19 related reason; provision of an additional 13 weeks of benefits; and an additional $600/week benefit through July 31, 2020.
- Paycheck protection loans – generally for employers with fewer than 500 employees to fund 8 weeks of payroll, rent, utilities and mortgage interest. Loans are forgivable if employers meet requirements for maintaining employee counts and payroll costs.
- Employee retention credit – provides a refundable tax credit of 50% on up to $10,000 in qualified wages (including health benefits) to businesses experiencing economic hardship related to COVID-19 (as defined). If more than 100 employees (average employee count in 2019), the credit only applies to employees who are being paid but not providing services for COVID-19 related reasons. For smaller employers, it applies to wages paid to all employees.
- Delayed payment of employer social security taxes – permits employers to defer payment of 2020 employer social security taxes (6.2% on all wages up to the SS wage base), with 50% of the deferral due in 2020 and 50% due in 2021.