Many employers have invested in on-site or near-site health clinics as a way to improve employee access to care, reduce healthcare costs, and minimize time away from work. While these clinics can provide significant value, they also can create a compliance issue that is easy to overlook: if your on-site clinic is a group health plan, are you complying with COBRA?
In our experience, many employers have never considered that question. The clinic may have been established years ago, operated by a third-party vendor, and viewed primarily as a workplace benefit rather than a health plan. Unfortunately, regulators may see it differently.
Is Your On-Site Clinic a Group Health Plan?
Not every on-site clinic is subject to ERISA and COBRA. The threshold for an ERISA welfare benefit plan is relatively low. An arrangement can constitute an ERISA plan if you establish or maintain it to provide medical benefits to employees or their beneficiaries.
A narrow exception generally exists for facilities that provide only first aid or treatment for minor injuries and illnesses occurring during working hours. However, many modern clinics have evolved well beyond that limited purpose and may provide preventive care, primary care services, chronic condition management, vaccinations, laboratory services, and prescription management. If this sounds like your clinic, it may satisfy the definition of an ERISA group health plan even if you have never formally documented the clinic as a separate plan.
If It Is a Group Health Plan, COBRA Likely Applies
Once your clinic is treated as a group health plan, you may focus on ERISA plan documents, SPDs, and Form 5500 reporting. Those items are important, but another issue frequently flies under the radar: COBRA. COBRA generally requires you to offer qualified beneficiaries who experience certain qualifying events the opportunity to continue group health plan coverage. Terminations of employment, reductions in hours, divorce, death, and a child losing dependent status are common examples.
If the clinic is integrated into your group health plan, you may be able to offer COBRA jointly with your medical plan. However, if it is its own health plan (e.g., employees not enrolled in your health plan may use it), you likely need to offer former employees and covered dependents stand-alone continuation rights with respect to the clinic, just as you do with medical, dental, or vision coverage.
The Big Problem Is Often the Notices
In many cases, terminated employees have little interest in electing COBRA solely to preserve access to an on-site clinic, but that doesn't mean you don't have to offer it to them. A clinic that is an ERISA plan should be giving initial COBRA notices and COBRA election notices when individuals lose coverage for a qualifying reason. The DOL model notices are a good place to start if you don't have a notice for your clinic. COBRA notice failures can create exposure to excise taxes, statutory penalties, participant claims, and the costs associated with correcting administrative errors after the fact. Even if you use a COBRA vendor, you should not assume the vendor is addressing your on-site clinic unless you have specifically identified the clinic and incorporated it into the COBRA administration process.
Former Employees On-Site
Even if you agree that COBRA may apply, another issue quickly emerges: what does continuation coverage actually look like? You may be understandably uncomfortable with the idea of former employees and former dependents continuing to access an on-site facility located within the workplace. Questions immediately arise regarding building access, security procedures, scheduling, confidentiality, and interactions with current employees. These concerns do not necessarily eliminate your COBRA obligations. Instead, they highlight why you should proactively evaluate how the clinic is structured and how continuation coverage would be administered before a compliance issue arises.
Setting the COBRA Premium for the Clinic
You also need to decide how the COBRA premium for the clinic will be set. This can be more complicated than it sounds because many clinics are offered at no cost to active employees and may not have an obvious per-person premium. At a high level, you should consider whether the clinic will be bundled with medical plan COBRA or offered as a separate COBRA coverage option. If the clinic is offered separately, you will need a reasonable method for determining the applicable premium, which may require looking at the cost of operating the clinic, vendor fees, expected utilization, eligible population, administrative costs, and whether dependents are covered. The key is to make a deliberate decision and document the methodology, rather than assuming that no COBRA premium applies simply because active employees do not pay for the clinic.
Final Thoughts
On-site clinics are often implemented as a convenient employee benefit, but they can carry obligations that you may not have anticipated when the clinic was first established. The takeaway is simple: if your on-site clinic is an ERISA group health plan, COBRA likely needs to be part of the conversation. And in many cases, the most significant risk is not that former employees will elect coverage and return to the worksite. The greater risk is that you never considered the clinic to be a COBRA-covered benefit in the first place.
If you have any questions on this guidance, please contact any member of our Employee Benefits Team.
