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Subsidizing Student Health Insurance With Stipends – New Agency Guidance and Relief

On February 5, 2016, the Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued guidance addressing the application of market reforms and other provisions of the Affordable Care Act (ACA) to student health coverage, and providing temporary transition relief from enforcement by the Departments for non-compliant employers.

The Landscape for Student Plans

In our four-part Student Employees and the ACA series we discussed the following issues facing schools:

  • In Part One, we noted that the ACA’s employer shared responsibility mandate requires large employers to either offer coverage under a group health plan to full-time employees, or risk paying a penalty. If a student is performing services for an educational institution (other than through a qualified federal work-study program), he or she may very well be a “full-time employee” of the educational institution and entitled to an offer of coverage.
  • In Part Two, we discussed how an offer of student health insurance, such as Massachusetts SHIP coverage, cannot be used to satisfy an employer’s “offer of coverage”, because such coverage is “coverage in the individual market” and does not fall under the definition of “group health plan.”
  • In Part Three, we asked whether an educational institution offer a stipend to a student to help defray the costs of student health insurance, such as Massachusetts SHIP coverage. We thought that the employer likely could not provide a stipend to a student employee in his capacity as an employee, because this arrangement would run afoul of the ACA’s market reforms.  We did indicate that a subsidy might be permissible if provided to a student in his capacity as a student, but that it would be hard to determine whether a stipend was provided in a student capacity or the employee capacity, particularly in the case of a broad-based financial aid package.
  • In Part Four, we discussed the challenges schools face when determining if a student employee is “full-time” and entitled to an offer of health care coverage.

What’s new?

The Departments’ newly-released guidance (available here) focuses primarily on the third issue above, and offers brief transition relief to those who got it wrong.   The Departments remind us that employer payment plans (EPPs) (i.e. group health plans that directly reimburse employees for all of some of the premiums expenses incurred for individual market coverage) do not work because they violate certain ACA market reforms (most typically, the prohibition on annual dollar limits under Public Health Service (PHS) Act section 2711 and the requirement to provide certain preventive services without cost sharing under PHS Act section 2713.)

The departments explain that “student health insurance coverage” is individual market coverage.  More specifically: “student health insurance coverage” is a type of individual market health insurance coverage that is offered to students and their dependents under a written agreement between an institution of higher education (as that term is defined for purposes of the Higher Education Act of 1965) and an issuer.  So, in some cases, when a school defrays the costs of student health insurance through a subsidy, it creates an EPP and violates the ACA market reforms.

The guidance does not say which subsidy type arrangements create EPP’s and which do not.  All we know is that not all arrangements whereby a school subsidizes coverage under student health plans will be EPPs.

It appears that, if the student is an employee, and the amounts are paid towards student health insurance coverage, then the subsidy is an EPP.  If the student not an employee, then a stipend towards student health insurance coverage will not be an EPP because there is no employer-employee relationship with which to create an EPP.

The Brief Relief

The Departments recognize that many schools have unwittingly been using EPP arrangements, and that that schools may need additional time to adopt a suitable alternative or make other arrangements to come into compliance. Accordingly, the Departments indicate that they will not assert that a premium reduction arrangement fails to satisfy PHS Act section 2711 or 2713 if the arrangement is offered in connection with other student health coverage (insured or self-insured) for a plan year or policy year beginning before January 1, 2017 (therefore including, for example, plan years or policy years that are roughly coterminous with academic years beginning in the summer or fall of 2016 and ending in 2017).

What Should Schools Be Doing?

Educational institutions should reconsider the health coverage offered to students, whether the students are employees or not and whether the coverage is student health insurance or coverage under an employer’s group health plan, to ensure that all coverage offered meets the requirements of the ACA.  The transition relief provides only a narrow window of time and addresses only one possible problem.  Now is the time to identify and fix problems.

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Patricia Moran