Employment Laws & Regulations: CARES Act Modifies Employee Benefits Provisions - What Employers Need to Know
On March 27, 2020, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”, H. R. 748). This is the third measure enacted to provide multi-level assistance resulting from matters relating to the coronavirus. Following is a summary of employee benefit related provisions of the CARES Act.
For more details on the CARES Act, click here to download our Employer Compliance Guide: COVID-19's Impact on Benefits and Employement.
Welfare Benefit Plan Topics
Temporary relaxation of HSA-compatible HDHP rules for Telemedicine Services
The CARES Act provides that an HSA-compatible high deductible health plan can generally reimburse telemedicine services, not just those limited to coronavirus testing, prior to satisfaction of the minimum statutory deductible without jeopardizing HSA eligibility. This provision applies to plans years beginning on or before December 31, 2021 (effectively before 2022 plan year).
ACA Preventive Services
The CARES Act provides that if a vaccine or other preventive measure is developed, it will be deemed a preventive service and covered without cost share in accordance with the ACA’s market provisions within 15 days of it being recommended by the U. S. Preventive Services Task Force (USPSTF) or vaccine recommended by the Advisory Committee on Immunization Practices (ACIP). The intent of this provision is to ensure immediate coverage of a preventive service without waiting a one-year delay that is typically required before plan obligated to cover it.
Coverage for Corona Virus Testing and Preventive Services
The CARES Act clarifies a few issues relating to coronavirus diagnosis, specifically as it relates out of network services.
As background, the Families First Coronavirus Response Act enacted on March 18, 2020 requires individual and group health plans, including insured, self-funded plans and grandfathered health plans, to provide first dollar coverage for FDA-approved testing for COVID-19, as well as related services received during emergency rooms, urgent care facilities, or in-person or telehealth visits. The CARES Act broadens the type of tests beyond FDA-approved testing to include tests provided by labs on an emergency basis, state-developed tests, and any other tests determined appropriate by the Department of Health and Human Services (HHS). The intent of this provision is to broaden availability of reimbursable tests.
With regard to out of network costs for coronavirus testing, insured plans are required to reimburse the cost of testing in accordance with in-network rates negotiated prior to the declared coronavirus emergency. If there had been no prior out of network negotiated rates in place, then the plan is to reimburse based on the provider’s cash price for the testing. Such amount is required to be publicly displayed on the provider’s website. The intent of this provision is to mitigate the ability of an out of network provider to send a “surprise bill” to the affected individual; however, the law does not necessarily eliminate surprise medical billing from occurring.
Over-the-counter Prescription Drugs and other qualified medical expenses
The CARES Act allows spending accounts such as HSAs, Archer MSA, flexible medical spending accounts, and health reimbursement arrangements to cover over-the counter medications without a prescription. This provision effectively eliminates the ACA’s requirement that coverage for OTC medications be prescribed. This is permanent change to law. Further, these accounts can be used to pay menstrual products as a qualified medical expense. Both provisions take effect retroactively to January 1, 2020.
Educational Assistance Programs (Code Section 127)
Under employer-provided educations assistance programs, the law currently allows up to a $5,250 exclusion from an individual’s gross income for educational expenses. The CARE Act provides a temporary ability for educational assistance programs to pay student loan payments. Generally, education assistance is only available for current education. This provision only applies from the date of enactment (March 27, 2020) through December 31, 2020.
Retirement Plan Provisions
- Distributions. The CARES Act relaxes the 10% early distribution penalty applicable to defined contribution plans. This allows individuals to withdraw up to $100,000 that would not be subject to the early 10% withdrawal penalty but would be subject to income tax, payable over a 3-year period. Alternatively, the amount distributed can be repaid at any time over the three-year period commencing on the date the distribution.
The withdrawal must be specifically for individual, or his/her spouse or dependent, who have been diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease and Control (CDC).A distribution could also be taken if the individual experiences adverse financial consequences as a result of being quarantined, or, is furloughed, laid-off, or whose hours have been reduced, or is unable to work due to lack of child care.Such instances must be certified by the participant.
- Plan Loans. The CARES Act increases the dollar amount (from $50,000 to $100,000) and the percentage test limits of a participant’s vested account (from 50% to 100%) for loans from qualified plans. This provision applies to loans made from March 27, 2020 to September 27, 2020 (the 180-day period beginning on the CARES Act enactment date), Further, repayment of existing plan loans outstanding on or after March 27, 2020 (date of enactment) is delayed by one year, provided the payment is otherwise due on or before December 31, 2020.
In both instances described above, the relevant plan would need to be amended to provide for the changes to distributions and plan loans.
- Waiver of RMD age requirement. As a reminder the SECURE Act (enacted on December 20, 2019) increased the required minimum distribution (RMD) age from 70½ to age 72 for distributions required to be made after December 31, 2019. The CARES Act waives this requirement for distributions from defined contribution plans, profit sharing plans, IRAs, 403(b) and 457(b) plans for RMDs required to be made in 2020. This waiver, however, does not extend to defined benefit plans.