Employers today are vitally interested in controlling the costs of providing health benefits. A growing trend among companies is to develop on-site clinics and, according to the insurance industry, nearly one-third of large employers are now offering this benefit. The reasoning is that if employers can make basic care more convenient and provide it in a lower-overhead setting, employees will use it more, be healthier and resort less to expensive emergency room visits for routine health care needs.
Planning an on-site clinic, however, also entails anticipating the legal requirements that apply. At a presentation hosted by Froedtert Health Workforce Health, employee benefits attorney John Barlament, partner at Quarles & Brady, emphasized that clinics are federally regulated and outlined five important considerations:
1. The Employee Retirement Income Security Act of 1974 (ERISA)
The ERISA generally considers a clinic to be a group health plan if it provides medical benefits (e.g. care for a sore throat). Thus, a typical on-site clinic must comply with the reporting and disclosure requirements, such as Form 5500, a Summary Annual Report (SAR) and Summary Plan Description (SPD). The one exclusion would be for a facility that only provides urgent care during working hours.
2. Consolidated Omnibus Budget Reconciliation Act (COBRA)
COBRA regulations — the right to continue group health benefits for a limited time — apply to the typical on-site clinic that goes beyond providing first aid during working hours. Companies should plan ahead for allowing clinic access to former employees eligible under COBRA or look to make a comparable offering.
3. Health Savings Account (HSA)
HSA rules may prohibit employees from contributing to an HSA if a clinic provides significant medical care free or at reduced cost. Possible workarounds include limiting services to those the Internal Revenue Service (IRS) permits (including dental and vision, allergy shots, physicals and immunizations), integrating with major medical for employees in High Deductible Health Plans (HDHPs) and setting a fee for all services not on the permitted list.
4. Health Insurance Portability and Accountability Act of 1996 (HIPAA)
HIPAA portability rules — pre-existing condition, special enrollment, nondiscrimination — do not apply to on-site medical clinics because they are categorized as “excepted benefits.” Clinic providers (vendors), though, may be HIPAA “covered entities” and must comply with privacy and security regulations concerning the protected health information (PHI) of employees and dependents who utilize the clinic. Even if HIPAA does not specifically apply, employers may want to reassure employees that there is separation between the clinic and the employer and their information is kept confidential.
5. Affordable Care Act (ACA)
The ACA mandates under ERISA, the Internal Revenue Code (IRC) and the Public Health Service Act (government employers) apply to group health plans. However, on-site clinics are likely exempted because the IRS, Department of Labor and the Department of Health & Human Services have confirmed that the HIPAA portability excepted benefits rules apply (see #4 above). Regarding other provisions, W-2 reporting is required if a COBRA premium is charged, and the “Cadillac Tax” on high-cost coverage explicitly includes clinic coverage if it is above predetermined thresholds. The IRS has promised more guidance on this rule, which is scheduled to take effect in 2022.
Many an employer will conclude that opening an on-site clinic is the good and right thing to do — both to help control health care costs and to provide a valuable benefit to employees. Far-sighted companies will want to take into account the legal implications, as planning ahead of time is much-preferred to paying a penalty later. They are wise to seek legal counsel and partner with an experienced provider in the design of an on-site clinic. Regulations need not deter companies from accomplishing their goals, so long as they take “an ounce of prevention.”
Updates and orders
Barlament also gave employers a heads up on the implications of presidential orders, the most significant being a 2019 order directing an expanded definition of preventive care for health savings account (HSA) purposes. The IRS responded with a narrow list of approved treatments for conditions such as congestive heart failure, asthma, diabetes, heart disease and depression. Following the list, employers will be able to provide more coverage for their employees on a pre-tax basis. On-site clinics can adopt this provision by providing additional preventive care on a pre-deductible basis, which allows for HSA compatibility with high deductible plans.