Discussing how to maintain organizational and employee wellbeing while achieving your business objectives for employee health benefits for 2021. 

2020 has been a year of challenges, surprises, mixed signals, and at times, downright confusion. The last twelve months have been eventful, to say the least, for plan sponsors and employers. Maintaining your organizational wellbeing during the unprecedented COVID-19 pandemic has required a broad view of the factors that impact your ability to achieve your business objectives while supporting the personal wellbeing of your employees. While employers struggle to understand the "new normal," some developments may have caused more than one employer to want a redo for 2020. With the perspectives from 2020 noted below in mind, will your organization be able to set the right priorities for employee health benefits for 2021 and beyond?

Navigated. Returned. Changed.

In March, the World Health Organization (WHO) declared COVID-19 to be a pandemic. The United States followed suit declaring a public health emergency, and, as a result, enacted a flurry of relief bills to address the economic implications of the pandemic on Americans, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act (FFCRA). Employers suddenly faced navigating new paid leave laws, remote work, and the need to make difficult business-related decisions, such as invoking furloughs, layoffs, and reductions in employee work hours. As COVID-related restrictions lessened in the summer and early fall, employers then faced the challenges of returning employees to the physical workplace safely and effectively. While a vaccine is on the horizon, employers are not inoculated from the pandemic's continued impact on business operations, employees, and employer-sponsored benefits. As Congress ponders additional economic relief and a change in administration is on the horizon, additional regulations and legislation impacting employee benefits are likely just around the corner, which means that more change is on the way. What steps does your organization take to stay on top of developing requirements related to employee benefits?

Clarified. Revised. Supplemented.

On May 1, 2020, the Department of Labor (DOL) issued revised model COBRA initial and election notices. The new models contain additional language describing the interaction between COBRA and Medicare and will be helpful for qualified beneficiaries eligible for both, but there was something missing from those updates. On May 4, 2020, the DOL and the Internal Revenue Service issued guidance significantly extending COBRA deadlines — such as time frames for making COBRA elections and paying premiums — in response to COVID-19. Unfortunately, the May 1 models do not include any information about those extended deadlines, and the DOL has not provided new model notices or sample language. However, in an uncomfortable twist, recent DOL audits requested documentation from employers showing that the COBRA deadline extensions were communicated to employees. Without specific guidance requiring employers to include extension language in their COBRA notices, many employers have been left slightly adrift. How has your organization communicated information for the COVID-19 COBRA deadline extensions to qualified beneficiaries?

Covered. Excluded. Covered.

Employer-provided medical plans were permitted to reimburse the cost of over-the-counter (OTC) drugs when the IRS issued a Revenue Ruling in 2003. In 2010, the Patient Protection and Affordable Care Act (ACA) amended the tax code to limit reimbursement only to those OTC drugs that were prescribed by a physician. Consequently, many plans and third party administrators (TPAs) changed their administrative systems in response to the ACA to ensure that only prescribed OTC drugs would be reimbursed. The CARES Act amended the ACA beginning in 2020 to permit reimbursement of OTC drugs without a prescription. Thus, what was in, but then out, is back in again, and employers may once again permit employees to receive reimbursements for OTC drugs without a prescription from employer-sponsored health plans, such as health flexible spending accounts (FSAs). The sudden change may have been effective before administrators were able to change their coding, but hopefully, necessary adjustments both to plan documents and administrative processes have been made. Have you or your TPA changed administrative systems and your plan documents to match the new rules?

Settled. Expanded. Examined.
In mid-2020, in Bostock v. Clayton County., Ga. (Bostock), the U.S. Supreme Court resolved a split among the Circuit Courts, ruling that firing an employee on the basis of sexual orientation or gender identity violates Title VII of the Civil Rights Act of 1964 (Title VII). While this would seem to settle the question of whether sex discrimination includes discrimination on the basis of sexual orientation or gender identity, the Court made clear that the Bostock ruling was limited to the specific issue presented — termination of employment. The ruling did not address other employment issues that may arise under Title VII, including issues relating to employee benefits. The breadth of this ruling will need to be determined by future cases. Indeed, later in 2020, a federal district court in Illinois was faced with the question of whether eligibility for coverage under a union health plan can be limited to opposite-sex spouses. A health participant sued her union and the welfare fund providing coverage for discrimination under Title VII when the participant was refused enrollment of the participant's same-sex spouse in the plan. We expect to see additional cases examining the extent of the Supreme Court's ruling. In the meantime, employers should address any employment or benefits decisions based on an employee's sexual orientation or transgender status with legal counsel. What plan eligibility provisions do you need to discuss with counsel?

Included. Excluded. Included.

Since their publication in 2016, the ACA's Section 1557 rules have wavered between including gender identity, sex stereotyping, and termination of pregnancy within the definition of sex discrimination and excluding those same concepts. 2020 has not brought any clarification to this issue. As a refresher, Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability, for any health program or activity, any part of which receives federal funding or assistance, or under any program or activity that is administered by an executive agency or any program or activity administered by an entity established by Title I of the ACA. May 2016 regulations, which included gender identity, sex stereotyping, and termination of pregnancy in the definition of sex discrimination, were almost immediately subject to a Texas federal court's nationwide injunction blocking enforcement of the portion of the regulations related to gender identity. Skipping ahead to 2020, the Department of Health and Human Services issued final regulations removing gender identity, sex stereotyping, and termination of pregnancy from the definition of sex discrimination. Coincidentally, and creating confusion around the issue of gender identity and discrimination, the regulations were released within days of the Supreme Court's Bostock ruling discussed above. Then, on August 17, a federal district court in New York issued a preliminary injunction blocking the portion of the regulations that would have changed the definition of discrimination "on the basis of sex" to exclude gender identity and sex stereotyping. Additionally, on September 2, 2020, a federal judge in the District Court for the District of Columbia issued a nationwide injunction, blocking two provisions of the final regulations: (1) the removal of "sex stereotyping" from the definition of sex discrimination, and (2) the incorporation of Title IX's exemption for religious organizations. Additional cases challenging the rules are working their way through the courts. So, whether the Section 1557 definition of sex discrimination ultimately will include gender identity and sex stereotyping remains to be seen and may eventually be determined by the U.S Supreme Court. If you are subject to Section 1557, how does this issue impact your plan?

This is a preview edition of Priorities and Perspectives, a monthly publication produced by Gallagher's Compliance Consulting Practice. For five more action steps, contact your Gallagher representative or visit our Compliance Resources page to subscribe and receive the full version of this publication each month.


Compliance is a series of actions, not a final destination. As a trusted advisor, Gallagher has developed this Priorities and Perspectives series to help you pursue a path through employee benefits compliance issues as part of an overall continuing compliance plan. Employers should carefully evaluate their health and welfare plans to determine if they are in compliance with both federal and state law. If you have any questions about one or more of the compliance requirements listed above, or would like additional information on how Gallagher constantly monitors laws and regulations impacting employee benefits in order to support employers in their compliance efforts, please contact your Gallagher representative.


The intent of this analysis is to provide you with general information. It does not necessarily fully address all your organization's specific issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be addressed by your organization's general counsel or an attorney who specializes in this practice area.