On-site clinics utilized in conjunction with a group health plan are becoming an increasingly common method to help employers address the rising cost of health care.  The issues in implementing an on-site clinic may seem obvious:  Finding a service provider; installing an appropriate facility; and addressing employee access during work hours. However, there are less obvious but equally important compliance concerns that arise when an on-site clinic is implemented. Such clinics maintained on an employer’s premises for “treatment of minor injuries or illness or rendering first aid in case of an accident during working hours” are exempt from the reporting and disclosure requirements of ERISA and other federal mandates such as COBRA. However, to the extent that employer-provided on-site clinics provide services beyond treatment for minor injuries and first aid, they are a means of providing medical care, and the requirements of federal law are important considerations for employers to address in adopting on-site clinic benefits. 

ERISA

An employer-sponsored on-site clinic providing medical care beyond treatment for minor injuries and first aid is an employee welfare benefit plan subject to the Employee Retirement Income Security Act of 1974 for employer-sponsored plans other than governmental and church plans. ERISA Section 3(1) defines an “employee welfare benefit plan” very broadly to include any “plan, fund or program” established or maintained by an employer for the purpose of providing enumerated welfare benefits to participants and beneficiaries.  Included in the list of enumerated welfare benefits are “medical, surgical or hospital care benefits.”  Although there is a regulatory exemption for employer-provided clinics applicable to worksite first-aid, clinics providing more comprehensive medical care (such as annual physical examinations, wellness visits, primary care and/or acute care services) will not qualify for this exemption, and will considered within the definition of a “group health plan” subject to ERISA’s reporting, disclosure and plan documentation provisions. Employers adopting on-site clinics should incorporate such clinics into their existing group health plan document, adopt a “wrap” plan document or create separate documentation to ensure that ERISA and Department of Labor regulatory compliance requirements are met.

COBRA

Similarly, under IRS regulations, employer facilities providing medical care beyond the treatment of minor illnesses and injuries or rendering first-aid are considered to be group health plans subject to the continuation coverage requirements of the Consolidated Omnibus Budget Reconciliation Act. An on-site clinic that provides medical care beyond first-aid and minor injuries must offer COBRA continuation coverage to all eligible employees, as well as their participating spouse and/or dependents, upon the occurrence of a COBRA qualifying event. Employers should be mindful of this COBRA obligation and ensure that all legally-required notices are provided, especially if eligibility to participate in the employer’s’ on-site clinic is broader than eligibility for the group health plan.  

The COBRA obligation arising out of an on-site clinic can create concerns for an employer outside of federal law compliance, particularly because terminated employees who elect COBRA continuation through the on-site clinic will continue to have access to the employer’s premises after employment terminates.

HIPAA portability, privacy and security

On-site clinics fall into a category called “excepted benefits” under the Health Insurance Portability and Accountability Act. As HIPAA "excepted" benefits, on-site clinics are exempt from HIPAA’s portability requirement, which means that HIPAA’s preexisting condition prohibitions and special enrollment rules do not apply. In addition, HIPAA’s administrative simplification provisions do not apply to excepted benefits. This means that an employer’s on-site clinic benefit is exempt from direct compliance with HIPAA’s privacy and security regulations. However, as a medical care provider, the vendor with whom an employer contracts to provide on-site clinic services is generally a medical care provider, and thus a “covered entity” under the HIPAA administrative simplification rules as long as the vendor conducts standard transactions electronically. As a result, the contracted vendor must fully comply with HIPAA’s privacy and security regulations in its use, disclosure and maintenance of the protected health information of an employer’s employees and dependents who receive on-site clinic services.

Health care reform

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, included eligibility and coverage mandates directly applicable to employer-sponsored group health plans. The PPACA and its implementing regulations do not directly address the PPACA’s application to health plans such as on-site clinics, but rely on HIPAA’s definition of “excepted benefits” in defining a group health plan.  As discussed in the HIPAA section above, on-site clinics are “excepted benefits” under HIPAA, and as such, are generally excluded from the PPACA’s eligibility and coverage mandates.

Coordination with HDHps and health savings account contributions

A key issue that many emploers must anticipate and address in adopting an on-site clinic is coordination of the services obtained from an on-site clinic with individual health savings account eligibility. Employers that have adopted a “consumer-driven” model and who make contributions to health savings accounts for employees must examine the services provided by an on-site clinic to determine whether those services will be compatible with the IRS requirements for HSA eligibility.       

To understand why HSA eligibility must be considered in implementing an on-site clinic, it is necessary to understand some general rules related to individual HSA eligibility and employer HSA contributions.  In order for an individual to be an “eligible individual” for purposes of contributing to an HSA, the individual must 1) be covered under an HDHP, and 2) have no health plan coverage other than HDHP coverage, except for plans covering preventive care, certain permitted coverage (dental, vision and post-deductible coverage) and certain permitted insurance (e.g. worker’s compensation, cancer and other specified disease coverage). If an individual meets these requirements, the individual HSA contributions will be excludable from income.

Fortunately, the IRS has imposed only limited responsibility on employers in determining whether a participant’s HSA contributions are excludable from income. An employer’s only responsibilities in this regard are to ensure that employee is covered under an HDHP sponsored by the employer, to ensure that the employee is not covered under a non-HDHP sponsored by the employer and to verify the employee's age for purposes of making “catch-up” contributions for individuals age 55 and older. Ultimately, in order to avoid a conflict with its consumer-driven plan design and continue making nontaxable contributions to individual HSAs of its employees, an employer must ensure that the proposed on-site clinic it sponsors does not constitute non-HDHP coverage for those participants. 

The IRS has concluded that an otherwise HSA-eligible individual who has access to an employer’s on-site clinic will remain eligible to contribute to an HSA if the on-site clinic “does not provide significant benefits in the nature of medical care (in addition to disregarded coverage or preventive care).”  However, if the on-site clinic provides “significant care in the nature of medical services” free of charge, or at a cost that is below fair market value, employees with access to the on-site clinic will not be eligible to contribute to an HSA.   In Notice 2008-59, the IRS provided an example of what it considered to be a clinic offering insignificant medical benefits compatible with HSA eligibility:    

A manufacturing plant operates an on-site clinic that provides the following free health care for employees: (1) physicals and immunizations; (2) injecting antigens provided by employees (e.g., performing allergy injections); (3) a variety of aspirin and other nonprescription pain relievers; and (4) treatment for injuries caused by accidents at the plant.

The clinic does not provide significant benefits in the nature of medical care in addition to disregarded coverage or preventive care.

In contrast, the IRS also provided a second example of employer-provided medical care constituting “significant” medical benefits:

A hospital permits its employees to receive care at its facilities for all of their medical needs. For employees without health insurance, the hospital provides medical care at no charge. For employees who have health insurance, the hospital waives all deductibles and co-pays.

Because the hospital provides significant care in the nature of medical services, the hospital's employees are not eligible individuals under.

Ultimately, to be compatible with a consumer driven model and health savings account contributions, an employer’s on-site clinic services should not be provided for free or below a reasonable determination of fair market value unless such services are preventive care services dental and vision services or “insignificant medical care” such as allergy injections, nonprescription pain-relievers and treatment for work-related injuries. 

Conclusion

Employer on-site clinics are a logical next step for employers as they continue to strive for lower health plan costs through an increased focus on employee wellness in the workplace.In doing so, however, employers must be aware of the related legal obligations in order to avoid potentially costly compliance issues down the road.  Consultation with a qualified benefits adviser and legal counsel is a must to ensure that these obligations are addressed.

This may constitute as Advertising Materials in some jurisdictions.  The content provided herein is for informational purposes only.

Catherine M. Stowers, Senior Attorney at Krieg DeVault, LLP is based in Indianapolis, Indiana and can be reached at (317) 238-6257 or cstowers@kdlegal.com.

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