Employer-Paid Abortion Travel Coverage Triggers Tax Consequences

Employers looking to provide safe harbor by covering workers’ out-of-state travel costs for abortion services must also navigate tax and benefits laws and consider employees’ potential tax burden, attorneys said.

Employers are preparing for an expected US Supreme Court decision invalidating Roe v. Wade, the 1973 decision that legalized abortion, by providing benefits to employees.

Six states, including California and New York, require abortion coverage in private health insurance plans, according to the Guttmacher Institute. Eleven states have laws that go the opposite direction, restricting insurance coverage of abortion in all private insurance plans written in the state, including those offered through health insurance exchanges established under the Affordable Care Act.

Adding travel coverage for medical purposes and reimbursing workers’ costs on a tax-free basis implicates benefit laws, said Edward Bernard, a benefits partner and shareholder with Hanson Bridgett in San Francisco. That means employers must contend with compliance issues under the Employee Retirement Income Security Act, Health Insurance Portability and Accountability Act, and the Consolidated Omnibus Budget Reconciliation Act, also known as COBRA.

“I think the main thing we’ve been hearing about is that employers are going to have to deal with this travel reimbursement,” Bernard said.

The average out-of-pocket cost for an enrollee who uses any abortion service and has cost sharing is $543, according to a California legislative analysis. The average cost share is $306 for a medication abortion, $887 for a procedural abortion, and $182 for associated services. And that’s without travel costs. California in March enacted legislation that banned cost sharing for abortion. New York and Illinois have similar restrictions.

Many large employers’ plans already cover workers’ travel expenses for certain out-of-state health-care procedures, the Kaiser Family Foundation said. This benefit is typically offered to reduce health costs, and for only specific expensive procedures such as hip and knee replacements, via partnerships with large health systems, the foundation said.

Travel expenses may be reimbursed tax-free up to certain limits if the abortion is the primary purpose of the trip, said Sharon Perley Masling, a Morgan Lewis partner and director of Workplace Culture Consulting.

“Expenses in excess of these limits may be reimbursed on a taxable basis, which means the employer will need to withhold employment taxes from the excess amounts. We do not believe that providing taxable reimbursements through a medical plan will affect the tax treatment of coverage under the plan as a whole, but the law is not fully clear in this regard,” Masling said in an email.

“Employers generally should be able to deduct the reimbursements, regardless of whether a reimbursement is taxable to the employee,” she added.

For employers in multiple states, whether and to what extent the various state abortion laws will impact employer-sponsored benefit plans will depend on the final decision in Dobbs v. Jackson Women’s Health Organization, which is expected to overrule Roe v. Wade, and the precise limitations of each state statute, Masling said.

“Some statutes prohibit abortions entirely, while others impose additional restrictions on the practice. Open questions include the extraterritorial application of these statutes and the applicability of ERISA preemption. These issues will likely be the subject of continuing litigation and debate,” she said.

Employment Fallout

Companies including Levi Strauss, Lyft, and H&M signed the Don’t Ban Equality statement that argues a restrictive abortion law is bad for business. “It impairs our ability to build diverse and inclusive workforce pipelines, recruit top talent across states, and protect the well-being of all the people who keep our businesses thriving day in and out,” the statement said.

Economic losses from existing abortion restrictions, including labor force impact and earnings, already annually cost state economies $105 billion, according to the Institute for Women’s Policy Research report. The figure is based on lost wages, turnover, and lower labor participation rates.

Companies speaking out about a possible overturn of Roe represent a small piece of corporate America. Employers that haven’t made public statements are likely still trying to figure out how to respond on behalf of their workers.

Management side law firm Jackson Lewis, in anticipation of the case coming down, put together a team of lawyers including benefits attorneys “to respond to client questions about how they can help their employees exercise reproductive rights and get medical care if they live in a state that may not permit it,” said Felice Ekelman, a principal in the New York office.

Lots of clients are asking questions, said Melissa Ostrower, co-head of Jackson Lewis’s benefits group in New York City. “We’re advising companies to the extent that they are going to have to have a travel benefit, to include it in their health plan for a variety of reasons, including potential preemption protections. And we’re also advising employers to keep the benefit broad to the extent possible, to the extent feasible, because it is more costly like that,” Ostrower said.

Added Ekelman: “That, of course, adds cost, but again, because then it’s broader array of travel benefits, but it may be more defensible down the road.”