Family-building benefits are very much “in the news.” Many employers are implementing new benefit programs to support employees in their journey to have children.
In the excitement of rolling out these new benefits, it’s possible for employers to overlook obligations under the Consolidated Omnibus Budget Reconciliation Act (COBRA) that may attach to family-building benefit components.
This column summarizes some key COBRA considerations for employers when implementing a family-building benefit.
Background
Family-building benefits vary by company. However, most programs include some or all of the following components:
- Coverage of infertility treatment expenses
- Coverage of long-term fertility preservation expenses
- Virtual coaching and employee assistance programs
- Fertility medication discount programs
- Reimbursement of adoption and surrogacy costs
There is no one-size-fits-all approach to family-building benefits. For that reason, given the different components that may be included as part of the employer’s overall family-building benefit, it can be helpful for employers to list out the different parts of the program. That way, COBRA compliance can be assessed for each component, reducing the possibility that something might be overlooked.
Coverage of Infertility Treatment Expenses
Employers may choose to increase coverage of infertility treatment expenses as part of a family-building benefit. Usually, this is done in one of two ways:
- An employer can enhance existing infertility treatment coverage under the employer’s major medical plan—for example, by adding specialized providers or increasing plan caps on expenses.
- In the alternative, an employer may decide to adopt a stand-alone health reimbursement arrangement (HRA) that sits alongside the employer’s major medical plan. Employees are then reimbursed under the HRA for infertility treatment expenses.
If an employer expands coverage for infertility treatment under its existing major medical plan, the COBRA treatment is generally straightforward. The employer’s major medical plan is subject to COBRA.
As a result, employees would need to elect COBRA under the major medical plan in order to receive continued coverage under the plan for infertility treatment.
If an employer decides to create an HRA to reimburse infertility treatment expenses, the COBRA treatment is more complex.
By way of reminder, an HRA is an employer-paid arrangement whereby the employer promises to reimburse a fixed dollar amount of employee medical expenses. Subject to an exception for HRAs offered by qualified small employers, HRAs are subject to COBRA like any other group health plan.
Applying the COBRA rules to HRAs, however, is not like applying COBRA to most other group health plans. Beyond general administrative headaches, there are two principal points of difficulty: (1) determining the population covered by the HRA and administering the COBRA election process and (2) determining the applicable premium.
Both issues are summarized below.
Affordable Care Act Requirements
To satisfy Affordable Care Act integration requirements, an HRA is usually offered alongside a traditional major medical plan. This can lead to two issues.
First, only those employees who were participating in the HRA before the qualifying event have the right to continue coverage under the HRA. But how do you identify which employees were “participating” in the HRA?
Employers take different approaches here, with one approach being that all employees who were eligible for the HRA are treated as eligible to elect COBRA. Others may require that the employees be actually “enrolled” in the HRA to be eligible to elect COBRA.
Second, when evaluating how to apply COBRA to an HRA, the plan administrator must decide whether a qualified beneficiary can elect COBRA only for the HRA as a separate stand-alone feature of the medical plan or whether a qualified beneficiary must also elect to continue major medical coverage during the COBRA period—i.e., whether to offer COBRA for the HRA on a “bundled” or an “unbundled” approach. Evaluating the best course of action for both issues is discussed further in ¶1216 of Mandated Health Benefits—The COBRA Guide.
Another complication for employers is determining the applicable COBRA premium for an HRA.
Generally, the applicable premium for any period of coverage is the cost to the plan of providing coverage for a similarly situated beneficiary. But how does that apply to an account-based plan?
Employers will likely need to work with a consultant and/or an actuary to determine the cost to provide the HRA to a similarly situated participant and set the COBRA premium.
Bottom line? If an employer decides to roll out an HRA to reimburse infertility treatment expenses as part of a family-building benefit, it should budget adequate time to work through the COBRA issues posed by the program.
Coverage of Long-Term Fertility Preservation Expenses
Another common component of family-building benefit programs is coverage of expenses for long-term fertility preservation—planned freezing of eggs and sperm. This treatment is used by individuals who want to protect against future infertility due to reproductive aging or other causes.
In contrast to traditional infertility treatment, which is used when an individual is unable to conceive without assistance, long-term fertility preservation is intended for individuals who aren’t actively attempting to create a pregnancy but who are instead hedging against the risk of potential infertility. For purposes of assessing the employer’s COBRA obligation in connection with this component, the key question is whether the reimbursement of such expenses constitutes the provision of “health care.”
The Internal Revenue Service (IRS) regulations define “health care” to include the diagnosis, cure, mitigation, treatment, or prevention of disease or any undertaking for the purpose of affecting any structure or function of the body. To date, the IRS hasn’t weighed in decisively on whether long-term fertility preservation expenses constitute “health care.”
Available IRS guidance suggests that long-term egg and sperm freezing may not fit under the IRS definition of “health care,” meaning COBRA doesn’t apply.
However, employers should consult with counsel regarding the specific details of the long-term fertility preservation expenses being reimbursed to determine whether they constitute “health care” and are subject to COBRA.
Virtual Coaching and Employee Assistance
Many family-building benefit vendors offer virtual coaching and online talk sessions to assist employees undergoing fertility treatment or who are navigating the adoption or surrogacy process. Depending on how the program is structured and to whom it’s offered, this type of program may constitute an employee assistance plan (EAP).
If the program is an EAP, the question becomes whether the EAP is providing “health care” and is thus subject to COBRA, similar to the inquiry for long-term fertility preservation expenses discussed above. There is guidance from the DOL suggesting that unless the EAP is limited to providing referrals, the program likely constitutes a welfare benefit plan that provides health care—meaning COBRA applies.
Applying these rules in the context of family-building benefits, if the vendor offers sessions with registered fertility nurses or other medical personnel, it seems likely that the EAP is providing health care and is subject to COBRA. A less clear case is when the EAP is providing referrals only. In that case, it seems possible that the EAP isn’t providing health care.
Employers will need to evaluate the types of services provided under the program to confirm whether it’s subject to COBRA.
As discussed in more detail in ¶ 1212 of the Guide, if the EAP is subject to COBRA, that poses many challenges for plan administrators. For example, many employers offer an EAP to all employees, regardless of whether they are enrolled in the employers’ major medical plan.
This means that the plan administrator needs to track and confirm that COBRA notices are sent to all employees enrolled in the EAP—even if they aren’t enrolled in the major medical plan.
Fertility Medication Discount Programs
Discount programs on common fertility medications are sometimes included as a component of a family-building benefit program. These discount programs may be offered through a specialty pharmacy managed by the family-building benefit vendor.
An interesting question is whether, if such a discount program is offered separately from the major medical plan, the discount program should be treated as a separate group health plan. The COBRA regulations suggest the answer to that question might be yes.
Under the COBRA regulations, any employer-provided program intended to relieve or alleviate a physical condition or health problem is considered to provide health care and is a group health plan under COBRA—meaning a fertility medication discount program is likely subject to COBRA. Depending on how the overall family-building benefit program is structured, employers would need to evaluate whether COBRA would need to be offered for the discount program to qualified beneficiaries on a bundled or an unbundled basis.
Reimbursement of Adoption and Surrogacy Costs
Another common component of family-building programs is a reimbursement program for employee adoption costs and/or expenses incurred in connection with surrogacy arrangements. In general, reimbursement of costs related to adoption or surrogacy shouldn’t give rise to a program that provides medical benefits—meaning neither program should be subject to COBRA.
However, employers should take care to review the exact nature of expenses that are covered under the adoption or surrogacy reimbursement program. In some cases, the third-party vendor standard offering may include reimbursement of some medical expenses related to adoption or surrogacy.
For example, the vendor may permit reimbursement of the employee’s medical costs related to in vitro fertilization (IVF) that are preparatory to the surrogacy as part of the surrogacy reimbursement benefit. In that case, it would seem that a portion of the surrogacy benefit is providing medical benefits and is subject to COBRA.
Again, careful review of the expenses that will be reimbursed under the program is key to assessing the employer’s COBRA obligation.
Putting It All Together
Adding a family-building benefit is often an exciting new offering for employees, who typically rank these benefits highly from a recruiting and retention standpoint. Employers and plan administrators should take care to review and confirm the COBRA treatment of each component of a family-building benefit program as part of the design process—in other words, before the benefit is rolled out—to confirm they are ahead of any COBRA administration and compliance issues.
Listing out each component and identifying the exact nature of covered expenses will make it easier for employers to “issue spot” potential COBRA trouble areas.
Jennifer Rigterink is senior counsel in the labor department and a member of the employee benefits and executive compensation group at Proskauer Rose, LLP. Her wide-ranging practice encompasses qualified retirement plans and nonqualified arrangements, health and welfare benefits, and fringe benefit programs. She counsels single-employer and multiemployer clients on matters pertaining to plan administration; design and qualification; and regulatory, legislative, and legal compliance.