On Tuesday, the IRS released additional interim guidance on the health reform requirement to include the cost of health coverage on an employee’s Form W-2. Employers are permitted, but not required, to report these amounts on 2011 W-2s issued by the end of this month, but reporting will be required for 2012 W-2s issued in January 2013.
Of particular interest in the guidance is the following Q&A:
Q-32: Is the cost of coverage provided under an employee assistance program (EAP), wellness program, or on-site medical clinic required to be included in the aggregate reportable cost reported on Form W-2?
A-32: Coverage provided under an EAP, wellness program, or on-site medical clinic is only includible in the aggregate reportable cost to the extent that the coverage is provided under a program that is a group health plan for purposes of § 5000(b)(1). An employer is not required to include the cost of coverage provided under an EAP, wellness program, or on-site medical clinic that otherwise would be required to be included in the aggregate reportable cost reported on Form W-2 because it constitutes applicable employer-sponsored coverage, if that employer does not charge a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements. If an employer charges a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements, that employer is required to include the cost of that type of coverage provided….For this purpose, federal continuation coverage requirements include the COBRA requirements under the Code, the Employee Retirement Income Security Act of 1974, or the Public Health Service Act and the temporary continuation coverage requirement under the Federal Employees Health Benefits Program.
There are several subtleties subsumed in this piece of guidance. First is the question of whether an EAP, wellness program, or on-site clinic constitutes a group health plan. Some employers incorrectly assume that such programs do not constitute group health plans and therefore would be categorically exempt from this requirement. The fact is that EAPs that provide counseling (even if limited to a small number of sessions) and wellness programs that provide medical care, including diagnostic testing, are technically group health plans subject to ERISA, COBRA, HIPAA, etc. Whether an on-site clinic is a group health plan depends much more on the services provided by the clinic, but clinics that primarily treat worksite injuries generally would not be considered group health plans. Depending on how the arrangements are documented, they may or may not be considered part of the employer’s larger group health plan and care should be taken to properly structure them to address ERISA, COBRA, HIPAA and other benefits-related concerns.
Secondly, however, even if those programs are considered part of the group health plan, some employers do not include EAP services, wellness programs, or on-site clinics in COBRA rights, even if those benefits technically are group health plan benefits. They may not charge a premium for these benefits (which would make them exempt from the W-2 reporting requirements), but they also do not offer them to COBRA participants at all, which is technically incorrect.
In setting up systems to comply with the Form W-2 reporting requirement, employers should take a hard look at any EAP, wellness program, and on-site clinic benefits they offer to ensure that they are in compliance on all fronts. The fixes are often not difficult to implement, but are usually less painful if done on a voluntary basis.