Due to the Dobbs decision (Dobbs v. Jackson Women's Health Organization), much has been written about whether an employer can cover the cost of travel for an employee working or residing in a state where abortion services are prohibited or seeking care in another state where abortion services are legal.
Section 213(d) of the Internal Revenue Code states that medical care includes amounts paid for transportation primarily for and essential to medical care related to the “diagnosis, cure, mitigation, treatment, or prevention of disease or for the prevention of disease or for the purpose of affecting any structure or function of the body.” The IRS, in Revenue Ruling 73-201.2 confirmed that because abortion services are deemed to be for the purpose of affecting a structure or function of the body, its cost is an amount paid for medical care as defined in the Code and was therefore deductible as a medical expense. Because the practice of medicine is regulated by the law of the state where the medical care is provided, and abortion services are clearly medical care, then if the care is received in a state where abortion is legal, expenses for travel for those services would be eligible for reimbursement as medical care under an employer’s group health plan.
Travel expenses incurred for the primary purpose of going to a state to receive abortion services can be offered on a tax-free basis under an employer’s group health plan, just like any other expense for medical care under the plan. There are limits that are imposed on the amount of the reimbursement for travel expenses, so to the extent that the plan will reimburse amounts beyond what is allowed, consideration needs to be given to how to treat those excess reimbursements as taxable income to the employee.
An employer can consider offering to pay for travel expenses on a pre-tax basis outside of its group health plan, but the employer should be aware that this specific benefit could be characterized as a standalone group health plan that must comply with the requirements of the Affordable Care Act, ERISA, HIPAA, and COBRA. Employers must take great care in establishing a benefit specifically for travel to seek out-of-state abortion services because it could make it easier for states where abortion is illegal to argue that by establishing a narrow travel expense reimbursement policy, the employer is facilitating access to abortion services in violation of state law.
If the employer wishes to consider establishing a travel and lodging benefit under their group health, the IRS has said that legally obtained abortion services are medical care and thus would be payable as medical expenses under an employer’s group health plan. Publication 502 states that a taxpayer can “include in medical expenses amounts paid for transportation primarily for, and essential to, medical care…[including] bus...train, or plane fares [and] transportation expenses of a parent who must go with a child who needs medical care.” Lodging expenses eligible for reimbursement are more limited. Publication 502 states that the taxpayer can only include “up to $50 for each night for each person. [The taxpayer] can include lodging for a person traveling with the person receiving medical care.”
Employers with self-funded plans will most likely work with their TPAs to determine if and how the plan will administer this benefit, including whether to cover travel for a broader range of covered medical services not available locally.
Employers offering fully-insured coverage will have to determine if such a benefit is available under those plans. If they aren’t, they may consider establishing an HRA or EBHRA that will reimburse eligible travel and lodging expenses incurred for a trip that is primarily for, and essential to, receiving medical services.
Self-insured employers can also establish an HRA or EBHRA for these purposes if they so choose. It is important to note that employers can determine the amount available under an HRA for reimbursement of expenses incurred for both abortion services and related travel and lodging. However, when establishing an EBHRA for reimbursement, there is an $1800 annual maximum limit which will apply.
Some employers have contemplated administering travel reimbursements outside of their health plan and treating such reimbursements as taxable income to the employee. There is some risk involved with this in that the employer needs to balance respecting the right of an employee to keep health care decisions private against requiring proper documentation of the expenses incurred and considering the scope of medical services for travel reimbursements.
Also, this type of policy would not be governed by ERISA, so an employer could not use the argument that ERISA preemption would apply to any state law attempts to restrict this benefit.
Insurance carriers and vendors will be rolling out new products and services to address travel. Some have already begun to offer “travel riders” for group health plans.
Before any of these options are considered, it is strongly recommended that the employer seek counsel from their tax or legal advisor.
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