Looking Beyond the ACA: Focus on Employee Assistance Plans

For over 20 years, employers’ focus on employee health centered on rising insurance costs and, with the advent of the individual and employer mandate, that focus has almost eclipsed all other employer-based health issues. It is time to look beyond insurance premiums to address the real cost of illness in the workforce.

According to the Gallup-Healthways Well-Being Index data from Jan. 2–Sept. 10, 2012, the annual cost to the U.S. in lost productivity due to absenteeism for professionals, managers, service workers, and office workers is more than $55 billion. Presenteeism (a term used to describe when employees are physically present, but due to a physical or emotional issue, are distracted to the point of reduced productivity), ¹See Benefits Canada http://www.benefitscanada.com/benefits/health-wellness/addressing-the-presenteeism-issue-33190. is more difficult to measure, but recent studies suggest that up to 24 percent of workers are actively disengaged and that presenteeism may contribute more to lost productivity than absenteeism. ²See Stephanie Reyes, “Presenteeism: the One Thing Worse than Absenteeism,” http://tribehr.com/blog/presenteeism-the-one-thing-worse-than-absenteeism, citing Klachefsky, M., Understanding Presenteeism. http://www.standard.com/eforms/16541.pdf. Unfortunately, as a product of our “disposable society,” most workers who are confronted with problems related to absenteeism or presenteeism view the confrontation as a threat to their job instead of an offer of help. This perception adds to the problem and ultimately creates retention issues and turnover costs. Employee Assistance Plans, commonly referred to as EAPs, offer a real solution.

Defining EAPs and Their Function; Breaking the Link to Health Insurance

EAPs are programs typically offered by employers that can provide a wide-ranging set of benefits to address circumstances that might otherwise adversely affect employees’ work and health. Benefits may include referral services and short-term substance use disorder or mental health counseling, as well as financial counseling and legal services. By focusing on critical incident short-term support and preventive proactive stress management, EAPs can combat both presenteeism and absenteeism. They are typically available free of charge to employees and are often provided through third-party vendors.

Employers and employees generally view EAPs as employee counseling services or health care benefits. ³See “An Employer’s Guide to Employee Assistance Program’s Survey of the National Business Group on Health Members,” December 2008. EAPs are also perceived as part of the popular, but increasingly complex, trend in wellness promotion. This makes them less attractive to employers who have become wary of offering incentives that could invoke negative attention from the Equal Employment Opportunity Commission (EEOC) and Department of Labor (DOL). ⁴See Maciel, Solander, and Smith, “Future New Year’s Resolutions: Will Your Wellness Program Still Be There to Help?” Benefits Practice Resource Center, BNA, 2014 41 BPR 524, 3/4/14, 41 PBD, 3/3/14. The result is that EAPs are largely perceived as low value health consulting programs with low utilization and little real impact on workforce productivity. Worse yet, they can be seen as paternalistic invasions into employees’ personal lives. ⁵ See Matthew Woessner, Ph.D., “Lessons from Penn State’s ‘Great Wellness Rebellion,’” Pension & Benefits Reporter, 41 BPR 1714, 8/19/14.

By changing the focus and goals for the EAP, the counseling and health care benefits are not lost, but the real value of the EAP as a tool for optimizing the organization’s human capital, can be realized and measured. The reality is that most major employers offer EAP benefits, but those benefits are not utilized. ⁶See Genevieve Douglas, “Employers Face Obstacles in Helping Employees with Mental Health Problems,” Human Resources Report, September 25, 2014. The utilization and effectiveness of EAPs can be enhanced by breaking the link between health insurance and the EAP and focusing on the proactive preventive role that EAPs serve. Health care regulation, taxation, return on investment, and EAP promotion are all involved in breaking the link between health insurance and EAPs.

Breaking the Link Through Health Care Regulation

EAPs are widely perceived as a type of health care coverage, which is not surprising since EAP coverage began as a substance abuse benefit and has had to comply with a variety of health plan regulations. The first step in breaking this link and perception was affirmatively taken in October 2014 when the Department of Labor finalized regulations that allow EAPs to be excepted benefits under the Affordable Care Act.

For an EAP to constitute excepted benefits, the EAP must satisfy four requirements:

1. The EAP does not provide significant benefits in the nature of medical care. For this purpose, the amount, scope, and duration of covered services are taken into account. For example, an EAP that provides only limited, short-term outpatient counseling for substance use disorder services (without covering inpatient, residential, partial residential, or intensive outpatient care) without requiring prior authorization or review for medical necessity does not provide significant benefits in the nature of medical care. At the same time, a program that provides disease management services (such as laboratory testing, counseling, and prescription drugs) for individuals with chronic conditions, such as diabetes, does provide significant benefits in the nature of medical care. The Departments may, through guidance, provide additional clarification in the future regarding when a program provides significant benefits in the nature of medical care.
2. The EAP’s benefits cannot be coordinated with the benefits under another group health plan. This requirement has two elements: (1) participants in the other group health plan must not be required to use and exhaust benefits under the EAP (making the EAP a “gatekeeper”) before an individual is eligible for benefits under the other group health plan; and (2) participant eligibility for benefits under the EAP must not be dependent on participation in another group health plan.
3. No employee premiums or contributions may be required for EAP eligibility. This step is crucial because EAPs will be perceived as health plans as long as they are presented as health plans. The Affordable Care Act has specific disclosure requirements and distinctive formats for health plan disclosures. By allowing EAPs to escape these formats and requirements, the EAPs appear distinct and different from the employer’s health care coverage. Additionally, the DOL requirements further distinguish EAPs from health plans by preventing EAPs aimed at disease management and by preventing coordination with group health plans. This allows EAPs to serve a proactive preventive role in wellness and workplace safety without becoming a component part of major health plan coverage. This is particularly important for preventive programs designed to support mental health. If the program is treated as a health benefit, mental health parity and the prohibition on annual limits make it almost impossible for the employer to offer targeted limited support. As an excepted benefit in an EAP, smoking cessation or short-term counseling can be limited, preserving them as affordable employer provided benefits. Finally, the EAPs can be offered without jeopardizing exchange subsidies under the Affordable Care Act.
4. No cost-sharing requirements may be imposed on EAP benefits.

EAPs that provide counseling, even if it is short-term and not based on medical necessity, may still be an ERISA plan. ⁷See DOL Advisory Opinion 88-04A, 3/11/88 (where the DOL concluded that such an EAP provided medical benefits and was an ERISA welfare benefit plan); see also DOL Advisory Opinion 83-35A, 6/27/83. These benefits may also be subject to compliance obligations under COBRA and HIPAA Title II, but the exemption under the ACA is a strong first step in decoupling EAPs from medical coverage. To the extent EAPs are participatory, not outcome-based “wellness programs,” they will not be subject to intense EEOC and DOL scrutiny.

Breaking the Link and the Impact on Taxation

The proper taxation of EAPs in the U.S. is an area where there is alarmingly little guidance and the wide variety of benefits and program structures makes it a difficult area to address. ⁸See IRS Publication 15-B, Employers’ Tax Guide to Fringe Benefits, which includes no mention at all of Employee Assistance Plans. Generally, the subject of taxation is simply avoided altogether. There are two main ways to justify this approach.

First, the employer can treat the EAP as a health plan. As discussed above, this approach is incompatible with decoupling the EAP from health benefits. Additionally, it is difficult to justify this approach when the EAP does not provide significant medical benefits and provides a number of nonmedical services.

Second, the employer can treat the EAP as a de minimis fringe benefit. The low cost of EAPs (from no additional cost because they are coupled with other insurance or services to a couple of dollars per employee per month) generally supports the de minimis fringe benefit approach. The EAP is available at all times and when it is paid for each month, there is a good argument that it is not an occasional benefit. On the other hand, EAPs are designed to provide support to employees faced with life-events that would be considered occasional, so even if the program is consistently available, the benefit itself is not. ⁹See Internal Revenue Code § 132(a)(4); 26 C.F.R. § 1.132-6; and IRS guidance regarding de minimis fringe benefits at http://www.irs.gov/Government-Entities/Federal,-State-&-Local-Governments/De-Minimis-Fringe-Benefits.

If the non-medical benefits provided are event-based and under $100, the de minimis fringe benefit approach seems reasonable. But counseling sessions often exceed the amount the IRS would treat as de minimis, which means that a combination of tax exemptions might be needed. ¹⁰Chief Counsel Advice (CCA) Memorandum 200108042 and TAM 200030001 suggest that items with a value over $100 would generally not reasonably be de minimis, but occasional theater or sporting events tickets can be and will often exceed the $100 limit. Employers should look at imputing income or documenting exemptions for each benefit using a variety of exemptions. For example, some counseling sessions might be medical while other counseling might be educational or retirement. Many EAP benefits should qualify as de minimis and some might even be working condition fringe benefits. Many employers want to combine EAP services with approved emergency assistance funding vehicles. ¹¹For an overview of these types of funding vehicles, see Douglas Stockham, MBA and Bryan Clontz, CFP, “Emergency Assistance Funds (EAFs) for Employee Hardship and Disaster Relief: Legal, Tax and Design Considerations,” May 2012 at http://www.pgdc.com/pgdc/emergency-assistance-funds-eafs-employee-hardship-and-disaster-relief-legal-tax-and-design-cons. Until the IRS issues clear guidance, the patchwork approach provides the best alternative to imputing income. Obviously, clear IRS guidance would be welcome, particularly if it supports employer deductions without generating employee income.

Breaking the Link to Improve Return on Investment

Once the EAP is decoupled from the health plan, the employer can look beyond health insurance costs, which are too vulnerable to market, and regulatory pressures, to provide a good measure of EAP effectiveness. The EAP’s return on investment is the contribution to the organizations’ human capital. Unfortunately, long-term results may be hard to isolate and short-term measurement presents challenges. The impact on absenteeism and retention will be easier to measure than the impact on presenteeism, individual performance, improved conflict resolution, and organizational structure. Another area that might be measured is workplace safety. Employers will want to work closely with their EAP providers to determine how the return on investment will be measured in advance and to improve and modify the measurement methods as the program develops. ¹²See e.g., the World Health Organization (WHO) Health and Work Performance Questionnaire (HPQ) and the Work Limitations Questionnaire (WLQ).

In developing tools to estimate and assess return on investment, the integration and coordination between other human resource functions should be considered. In organizations without a robust EAP, human resource personnel serve as unofficial EAP resources for employees facing life events or crises. The responsibilities generally fall on the human resource employee designated to support management in maintaining productivity levels, the employee responsible for leave of absence administration, benefit managers, and on direct supervisors. In developing an EAP program, those functions should be evaluated to determine and clearly define the EAP’s boundaries and functions to avoid duplication and to integrate with organizational goals. Clearly defining the structure presents opportunities for risk mitigation and cost-effective operations by creating structural boundaries between assistance and discipline. The planning and development stage should not be overlooked and should involve the organizations’ stake holders with careful review for employment law obligations as well.

Most of the dialogue surrounding an EAP’s return on investment centers around measuring the impact that the EAP has on the business, but less attention is placed on the investment itself. The October 2014 Department of Labor regulations that allow EAPs to be excepted benefits under the Affordable Care Act specifically allow EAPs to be financed through other types of insurance. David Sharar, Ph.D. and John Burke present some interesting information in their unique article, “The Perceived Value of ‘Free’ Versus Fee-Based Employee Assistance Programs.” ¹³“The Perceived Value of ‘Free’ Versus Fee-Based Employee Assistance Programs,” WorldatWork Journal, 4thQ, 2009. The article discusses the wide variety of EAP programs that are embedded into bundled packages with insurance or other services and compares these embedded programs to independent fee-based programs. Their survey suggests that cost-conscious employers, particularly smaller employers, chose embedded EAP programs without having a full understanding or appreciation for the potential value that an EAP can provide and that embedded programs have lower utilization as well as lower perceived and realized value. The survey supports the obvious: funding does matter. What has not been explored is the cost to an organization that does not have a formalized EAP. As discussed above, without a formal EAP, the EAP functions fall informally on other human resource personnel. The hidden cost of the informal program is likely the reduced effectiveness and morale of the human resource function within the organization and the increased litigation exposure that results from blurred lines between employee support and employer discipline.

Breaking the Link to Promote the EAP

An EAP serving a distinct purpose separate from health benefits can be integrated with organizational goals to maximize human capital. It should not be hard to promote because this type of EAP directly impacts the health of business itself. The reality is that utilization rates for EAP programs are very low, and the utilization is even lower when the EAP is provided as a no-additional-cost add-on by an insurance provider or third-party administrator. In fact, embedded EAPs provided at no additional cost to the employer experience utilization rates of 1 percent or less, compared to rates of 5–10 percent typically experienced by fee-based EAPs. ¹⁴See David Sharar, Ph.D. and John Burke, “The Perceived Value of ‘Free’ Versus Fee-Based Employee Assistance Programs,” WorldatWork Journal, 4thQ, 2009. This suggests that management’s buy-in and perceived value heavily influences utilization. Integrating the EAP with organizational goals and clearly defining how the EAP improves performance and reduces workload and risk for direct supervisors and human resource personnel promotes the value of the EAP for management, which will support promotion and utilization.

Promotion should also take into account generational differences and preferences. As the Office of Disability Employment Policy points out in its publication, Employee Assistance Programs for a New Generation of Employees, EAP programs that highlight the organization’s commitment to the individual and work/life coordination attract and engage the Millennials in the workforce (young adults between the ages of 18 and 30), but for other workers, EAP programs are often avoided because of the perceived stigma associated with mental health and other personal issues. The Office of Disability Employment Policy suggests the use of technology and seminars tailored for the audience, utilizing new technologies, and offering “take-aways” such as stress balls, games, and other stress-reduction gifts. Anecdotal experience suggests that these strategies will be just as effective in the “i-generation” coming up just behind the Millennials. ¹⁵See e.g., third graders at Tam Valley Elementary enthusiastically manufacturing stress balls as part of California’s Common Core, http://www.calrecycle.ca.gov/eei/UnitDocs/Grade03/35123/35123Core.pdf. On the other hand, reaching older workers in particular requires an awareness of the perceived stigma associated with mental health and personal problems so that the promotion maintains a proactive preventive focus instead of a “treatment” or “intervention” approach. This proactive preventive focus is only possible when the role of the EAP is distinguished from the role of employer-provided health benefits.