Use this roadmap to understand how legal and tax obligations may apply to specific benefit offerings and to guide program design or vendor selection.
Step 1: Medical care analysis
Does the Point Solution Provide “Medical Care”?
For purposes of this analysis, “medical care” is broadly defined to include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body.
Here, look for licensed physicians providing: (a) diagnoses; (b) treatment; and/or (c) prescriptions, responsive to an employee’s specific condition(s). If the point solution offers “medical care,” the program is likely subject to various compliance related mandates arising under the ACA, ERISA, COBRA, HIPAA, and MHPAEA (unless the solution is integrated or excepted, see steps two (2) and three (3) below).
For example, a Point Solution provides access to prescriptive pharmaceutical interventions for major depressive disorder, namely access to a selective serotonin uptake inhibitor (“SSRI”). The solution likely provides “medical care” because a licensed physician is providing a prescription for a medication utilized for treatment of a disease that affects a function of the human body.
Alternatively, if the Point Solution merely provides provider referrals, such as a traditional EAP, the medical care analysis likely fails, and the solution may be offered independently.
Step 2: Integrated benefit analysis
Is the Point Solution an Integrated Benefit?
After assessing whether the point solution provides “medical care,” next consider whether the solution is offered as an integrated benefit. To the extent a particular solution offers medical care, but is nonetheless offered as an integrated benefit, legislative compliance obligations shift away from the point solution benefit, and instead, legislative compliance requirements primarily apply to the underlying health plan. This means that substantive compliance with the requirements of the ACA, ERISA, HIPAA, COBRA, MHPAEA, and the like, is assured via the underlying integrated health’s plan compliance with these features of the law (rather than by the performance of compliance related mandates by the individual Point Solution).
A benefit, whether a Point Solution or not, may be integrated with an underlying group health plan (“GHP”) via one of two distinct regulatory methodologies, as detailed in the following table.
Two Methodologies for Group Health Plan Benefit Integration
| Option 1: “Minimum Value Not Required” | Option 2: “Minimum Value Required” |
|---|---|
| Employer offers a GHP (other than the Point Solution) to the employee, not consisting solely of excepted benefits. | Employee (or former employee) is permitted to permanently opt out/waive future reimbursement at least annually, and upon termination of employment, remaining benefits are forfeited, or the employee is permitted to permanently opt out/waive all future reimbursement. |
| Employee receiving the benefit is enrolled in a GHP that does not consist solely of excepted benefits (regardless of whether employer sponsored). | Employer offers a GHP to the employee that provides minimum value pursuant to Code § 36B(c)(2)(C)(ii). |
| Benefit is available only to employees who are enrolled in a GHP, regardless of whether the employer sponsors the GHP (e.g., a spouse’s employer sponsored GHP). | Employee receiving the benefit is enrolled in a GHP that provides minimum value (regardless of whether employer sponsored). |
| Benefit is limited to reimbursement of one or more of the following—copayments, co-insurance, deductibles, or premiums under the required GHP enrollment, as well as for “medical care” (as defined under IRC §213(d)). | Benefit is available only to employees who are enrolled in other GHP coverage, regardless of whether such coverage is sponsored by the individual’s own employer. |
| Employee (or former employee) is permitted to permanently opt out/waive future reimbursement at least annually, and upon termination of employment, remaining benefits are forfeited, or the employee is permitted to permanently opt out/waive all future reimbursement. |
Step 3: Excepted benefit analysis
Is the Point Solution an Excepted Benefit?
Having assessed whether the point solution provides “medical care,” and considering whether the solution is offered as an integrated benefit, the third step involves evaluation of the solution’s status as an excepted benefit plan. Generally, if a plan or program is designed as an excepted benefit (of which there are four distinct types, see below), the plan is exempt from various legal mandates, such as:
- Health Insurance Portability and Accountability Act (“HIPAA”) rules related to portability of coverage (note that Privacy and Security Rule related compliance is generally not excused).
- Excepted benefit plans are exempt from laws that have been incorporated into the HIPAA portability statute, including the Mental Health Parity & Equity Act (“MHPAEA”), the Women’s Health & Cancer Rights Act (“WHCRA”), the Newborn’s & Mother’s Health Protection Act (“NMHPA”), and Title I of the Genetic Information Nondiscrimination Act (“GINA”).
- Excepted benefits are exempt from many of the ACA’s substantive requirements, including the insurance market reforms introduced under the landmark healthcare reform law.
In the Point Solution context, a common compliance strategy involves classification of benefits as excepted benefits. Oftentimes, such “position statements” are merely vendor-attested designations; that is, internally drafted documents attesting to a plan’s satisfaction of the excepted benefit requirements.
Technical Release 2013-03 (2003) explains whether a solution is an excepted benefit. Among other variables, a solution constitutes an excepted benefit only to the extent it does not “provide significant benefits in the nature of medical care or treatment.” Employers may use a reasonable and objective interpretation of “significant benefits in the nature of medical care or treatment.”
The determination of whether a particular Point Solution may be classified as an excepted benefit plan hinges on a multi-factor regulatory analysis exploring design and administration of the underlying Point Solution. Following, please see below to begin exploring the four (4) individual design and administration-based requirements predicating a determination that a Point Solution is indeed an excepted benefit plan or program:
1. No Significant Medical Benefits
The Point Solution cannot provide “significant benefits in the nature of medical care.”
Example:
- Manufacturing plant ABC operates an on-site clinic that provides the following free health care for employees:
- Physicals and immunizations.
- Immediate attention provided by employees (for example, allergy injections).
- A variety of aspirin and other non-prescription medications.
- First-aid treatment for injuries caused by accidents at the plant.
- ABC company’s Point Solution satisfies this element of the excepted benefit analysis.
2. No Coordination with Group Health Plan
The Point Solution cannot be coordinated with benefits under another group health plan. This is accomplished via satisfaction of two regulatory tests:
- No Exhaustion: Participants in the other GHP cannot be required to use and exhaust benefits under the Point Solution (i.e., the Point Solution cannot act as a gatekeeper before becoming eligible for benefits under the other group health plan).
- No Participation Link: Participant eligibility for benefits under the Point Solution cannot be conditioned on participation in another group health plan.
3. No Employee Premium Required
The Point Solution cannot have an employee-share of the required premium (i.e., all participation-related expenses, including 100% of the enrollee coverage’s premium, must be paid for by the employer; that is, no portion of the coverage premium payment responsibility may be deferred to the eligible participant).
Example:
- DEF Company sponsors a fertility HRA offered by a Point Solution vendor. The premium associated with the benefit is $1,200 per participant per year. As noted by the vendor, the employer, DEF Company, pays 100% fully on behalf of all participants.
- DEF Company’s Point Solution satisfies this element of the excepted benefit analysis.
4. No Participant Cost-Sharing
The Point Solution cannot impose cost-sharing requirements upon the plan’s participants and beneficiaries in exchange for the receipt of treatment or services under the plan (that is, no participant deductible, no participant copayments, and no participant coinsurance requirements).
Example:
- Company GHI sponsors a virtual behavioral health Point Solution. Notwithstanding the participants’ access to virtual therapists, participants are not required to pay deductibles, copayments, or coinsurance for any services received under the plan.
- Company GHI’s Point Solution satisfies this element of the excepted benefit analysis.
Four types of excepted benefits plans.
Determination of whether a Point Solution may be classified as an excepted benefit plan hinges on a multi-factor analysis exploring design and administration of the underlying plan. Following, please find a table exploring the four type of excepted benefits plans.
| Type of EB | Designation | Overview of Applicability |
|---|---|---|
| Type One EB | Non-coordinated Excepted Benefits | Consist of coverage limited to specified disease coverage and hospital indemnity insurance (or any other fixed indemnity insurance). |
| Type Two EB | Limited Excepted Benefits | Consist of limited excepted dental coverage, limited excepted vision coverage, EAPs, long-term care, home health care, most, nursing home care, community-based care, and certain Health FSAs (so long as they qualify as limited scope benefits). |
| Type Three EB | Supplemental Excepted Benefits | Certain supplemental coverages that are generally considered excepted benefits, so long as they are provided under a separate policy, certificate, or contract of insurance and so long as they are Medicare supplemental health insurance, TRICARE supplemental programs, or similar supplemental coverages added to a GHP. |
| Type Four EB | Non-health Excepted Benefits | Consist of accident coverage, disability income protection, liability insurance, workers’ compensation, automobile medical payment insurance, on-site clinics, and other similar non-health programs, or similar non-health coverage added to a GHP. |
Step 4: Taxation related analysis
What are the Taxation Related Consequences Associated with Sponsorship & Participation?
There are a range of possible taxation related outcomes arising as the consequences of Point Solution program participation. Generally, there are four (4) potential taxation related outcomes, largely dependent on two factors: (a) whether the Point Solution provides medical care; and (b) whether the Point Solution is Integrated or Excepted. These outcomes are detailed in the following table:
| Outcome Type | Outcome Consequences |
|---|---|
| Outcome One: Medical Care is Offered | If medical care is available under the terms of the Point Solution, tax-qualification is only possible if the plan is compliant with the legal mandates, or if is it excepted or integrated. |
| Outcome Two: Medical Care is Offered, and the Point Solution is an Integrated Benefit | In this scenario, benefits received from the Point Solution are generally tax-qualified, so long as the underlying GHP is a tax-qualified arrangement, or if it complies with the legal mandates. |
| Outcome Three: Medical Care is Offered, and the Point Solution is an Excepted Benefit | In this scenario, benefits received from the Point Solution are generally tax-qualified, so long as the underlying Point Solution program is a tax-qualified arrangement, or if it complies with the legal mandates. |
| Outcome Four: Medical Care is not Offered | Generally, the plan may not be offered on a tax-qualified basis and the value of the benefits received under the terms of the Point Solution may be taxable to the participant. |
Flowchart of point solution benefit taxability
1. Does the Point Solution Provide Medical Care?
- If No: The Point Solution is not a GHP because it does not offer medical care.
- Benefits received from the plan are generally taxable in nature.
2. If Yes, is the Point Solution an Integrated Benefit Plan?
- If No: The Point Solution is not an integrated benefit plan. If offered on a stand-alone basis, the plan must comply with legal mandates.
- Benefits received are non-taxable if the underlying GHP is a tax-qualified arrangement.
3. If Not, is the Point Solution an Excepted Benefit Plan?
- If No: The Point Solution is not an excepted benefit plan. If offered on a stand-alone basis, the plan must comply with legal mandates.
- Benefits received are non-taxable if the Point Solution is a tax-qualified arrangement.
4. If Not, What Are the Taxation-Related Outcomes?
- Because the Point Solution is not a GHP, plan-level benefits are not qualified.
- Benefits received are generally taxable in nature unless the plan is a qualified plan.
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