As outlined in previous Duane Morris Alerts, the coronavirus, or COVID-19, presents a potentially serious risk to the safety and welfare of employees and the financial health of companies. With employers facing the prospect of government-mandated business closures and employees who need time off to care for children unexpectedly home for multiple weeks due to school closures, COVID-19 presents numerous employee benefit-related questions and challenges. This Alert will provide employers with a roadmap for addressing COVID-19 concerns that affect health insurance plans (including potential HIPAA privacy obligations thereunder), welfare benefit plans and retirement plans.
Health Insurance Plans
Applicable Large Employers Under the Affordable Care Act
Applicable large employers under the Patient Protection and Affordable Care Act (ACA)―i.e., employers with 50 or more full-time equivalent employees―must ensure compliance with the ACA's rules regarding the continued offering of coverage during stability periods. Employees who were deemed to be eligible for health insurance coverage during the employer's measurement period―due to meeting the ACA's 30 hours per week threshold―must remain eligible for coverage during the subsequent stability period, even if hours are reduced. This would include a reduction in hours in response to the coronavirus.
Small Employers Under the Affordable Care Act
For employers who are not applicable large employers under the ACA—i.e., employers with fewer than 50 full-time equivalent employees—these rules will not be applicable. Whether coverage will continue during a business closure for smaller employers will depend on the terms of the employer's individual insurance contract. For example, if the insurance contract provides for coverage during a leave period, the employee will remain eligible during the business closure (up to the maximum period specified in the insurance contract).
All employers―whether they are subject to the ACA's stability period rules or not―will need to determine how best to collect premiums from employees during any period of business closure. To the extent the employees continue to be paid during the business closure, payroll deductions can continue for employees that have previously elected coverage. However, if the leave is unpaid, then the employer will need to communicate with employees regarding the need to pay the required portion of their premiums. Employers generally have three options: (1) have employees prepay the required premiums; (2) have employees "pay-as-they-go" with respect to the required premiums; or (3) have employees pay the required premiums upon their return to work.
Employers should be mindful of their obligations under the Consolidated Omnibus Budget Reconciliation Act (COBRA). To the extent that there is no loss of coverage as a result of the business closure, there will be no obligation to provide employees with the ability to elect COBRA. However, to the extent that there is a loss of coverage as a result of the business closure―for example, due to a termination of employment or a reduction in hours―then the impacted employees should be provided with the required COBRA notice. Small employers that are not subject to COBRA should also be mindful of any mini-COBRA obligations in their state or jurisdiction.
HIPAA Privacy Obligations
In the context of the coronavirus outbreak, employers should continue to follow their existing HIPAA privacy policies and procedures. However, employers are reminded that the HIPAA privacy rules apply to "covered entities." With respect to an employer offering health insurance to its employees, the covered entity is the employer's group health plan and not the employer itself. As a result, the disclosure of a positive coronavirus diagnosis from an employee would not be "protected health information" under HIPAA because the information did not originate from the group health plan. Therefore, the employer's decision to inform other employees of the positive diagnosis would not raise HIPAA privacy issues.
Employers should be aware that while HIPAA will not be implicated by such a disclosure by an employee, the employer must consider its obligations under the Americans with Disabilities Act (ADA) and other applicable local, state and federal privacy laws when making a decision about the scope of its disclosure to others in the workplace about the diagnosis. By way of example, the CDC states in its published Interim Guidance for Businesses and Employers that if an employee is confirmed to have COVID-19, employers should inform other employees of their possible workplace exposure to COVID-19, but maintain confidentiality (e.g., not identify by specific name) as required by the ADA.
Welfare Benefit Plans
Employee eligibility under other welfare benefit programs may also be impacted during a business closure related to the coronavirus. This may include (among other offerings) eligibility under an employer's short-term disability, long-term disability or life insurance contracts.
Employers are encouraged to review their existing contracts and policies with respect to such welfare benefit programs to determine the impact of any business closure. For example, if an employee remains employed during the business closure on a designated leave, the employer should become familiar with the impact of such a leave in terms of eligibility for short-term disability benefits.
Retirement Plan Benefits
To the extent that an employee is paid during any period of business closure, the employer should continue to withhold elective deferrals under its 401(k) plan and timely remit those contributions.
To the extent that employees are not paid during a period business closure, 401(k) plan contributions (both employee and employer) would cease as there is no underlying compensation for purposes of the plan.
Suspension of Discretionary Contributions
Employers may also be contemplating a suspension in their employer contributions as a result of the coronavirus outbreak. If employer contributions are entirely discretionary, then employers have the ability to suspend employer contributions at any time.
Suspension of Fixed Contributions
For employers with fixed employer contributions, it is important to consider the individual 401(k) plan's provisions regarding eligibility for the employer contributions. If an employee has already satisfied the requirements to receive an employer contribution, that right cannot be eliminated retroactively. In other words, the employer may not remove contributions from participants who have already qualified for the contribution.
Suspension of Safe Harbor Contributions
Employers sponsoring a safe 401(k) harbor plan face additional restrictions on their ability to suspend employer contributions. Employers are only permitted to suspend or reduce nonelective or matching safe harbor contributions if the employer is operating at an economic loss or a supplemental safe harbor notice is provided. The supplemental notice must be provided at least 30 days before the suspension or reduction takes effect and provide eligible employees with the opportunity to change their contribution elections.
As with all issues related to the coronavirus, those outlined in this Alert are in constant motion and employers are encouraged to seek legal counsel to ensure that all applicable rules and regulations are followed. This is particularly important in light of any future legislation from Congress that addresses the coronavirus and its impact on employers and employees.
About Duane Morris
Duane Morris Benefits and Executive Compensation attorneys are available to assist employers in any way with respect to the novel and unique issues arising with respect to the coronavirus outbreak.
We are also offering the following webinar through the Duane Morris Institute:
For Further Information
If you have any questions about this Alert, please contact any of the attorneys in our Employee Benefits and Executive Compensation Group, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.