On-site clinics are becoming a smart investment for organizations focused on workforce health and operational efficiency. By bringing care directly to the workplace, employers can reduce absenteeism, speed up return-to-work timelines, and give employees easier access to preventive and acute care. This fact sheet breaks down the key benefits of on-site clinics, from cost savings to improved employee satisfaction, and why it’s a model more businesses are adopting.

Numerous legal and benefits-related considerations apply when employers provide medical care covered by group health plans at at on-site clinic. Group health plans generally are subject to federal statutes including the:

• Employee Retirement Income Security Act (ERISA)
• Consolidated Omnibus Budget Reconciliation Act (COBRA)
• Internal Revenue Code (IRC)
• Health Insurance Portability and Accountability Act (HIPAA)
• Patient Protection and Affordable Care Act (ACA) When developing an onsite clinic, employers must decide on the types of service to be provided. For example, will the facility offer both occupational and non-occupational care (such as episodic urgent care for personal health issues)? Will non-occupational care be available to employees under their group health plan? Will those services be free, low cost or charged at fair market value?

Depending on the circumstances, on-site clinics may be exempt from some or all requirements under applicable federal statutes. Employers are strongly advised to consult attorneys and benefits professionals who specialize in this area to ensure their delivery model is sound, especially where laws intersect and exceptions may apply.

ERISA and COBRA

If an on-site clinic does more than treat minor workplace injuries and illnesses, ERISA likely applies. It will also be subject to COBRA, unless the clinic is primarily an occupational health facility providing free first-aid-level care for work-related complaints, according to the Benefits Law Advisor published by Jackson Lewis, a national employment law firm.

To comply with ERISA, employers may include on-site clinic benefits in wrap documents with other ERISA benefits. The ERISA Wrap Summary Plan Description (SPD) is the main document required by ERISA, the ACA, and the U.S. Department of Labor to communicate group health plan rights and obligations to employee participants and beneficiaries. Any employer with a group health plan is required to distribute a copy of the Wrap SPD to all employees in the plan. Employee participation is counted to satisfy Form 5500 Internal Revenue Service (IRS) tax reporting requirements for health and welfare benefit plans.

Generally speaking, COBRA requires employers to provide notice and access to health benefits after an employee leaves employment, which may include continued access to on-site care depending on their eligibility. The employer must determine a “premium cost” of the on-site clinic for those employees who choose to continue their care with the clinic during their COBRA eligibility period. Employers who limit eligibility only to those employees who enroll in a major medical plan and do not charge a separate premium for care at an on-site/near-site clinic are exempt from having to report that cost on the employee’s Form W-2 under the ACA, according to Barbara J. Zabawa, president of the Center for Health and Wellness Law.

HIPAA and ACA

As a medical provider, an on-site clinic must comply with HIPAA privacy and security rules. These rules should also be followed when care is offered as part of an employer-sponsored health plan.

If an on-site clinic is operated by a contracted services provider, the contractor, not the employer, is subject to HIPAA. Certain transactions performed by an on-site clinic may be subject to HIPAA privacy and security provisions when it meets the definition of a covered healthcare provider or it is part of a covered group health plan. Such transactions may include eligibility determinations, billing, payment, coordination of benefits, and enrollment/disenrollment. In addition, employers who offer wellness programs in connection with an on-site clinic are advised to abide by HIPAA’s wellness incentive rules and exceptions.

Under the ACA, an employer is protected from any potential penalties (refer to §4980H(b)) as long as healthcare coverage is affordable based on the employee’s household income, or under one of these safe harbors: federal poverty level, rate of pay, or W-2 income tax form.

Health Savings Accounts and Health Reimbursement Arrangements

A health savings account (HSA) is owned by an individual employee who is enrolled in a high-deductible health plan (HDHP). Deposits into the account are not taxed and must be spent on healthcare-related expenses. HSA funds roll over from year to year.

Health Reimbursement Arrangements (HRAs) are an alternate tax-deductible source of funds paired with high-deductible or standard health plans. Employees are not permitted to contribute to HRAs, but unused HRA funds can carry over into subsequent plan years.

HRAs have fewer legal restrictions than HSAs, and they may decrease complexity with respect to the provision of personal care in on-site clinics. For example, an on-site clinic may provide free or reduced services such as physicals and immunizations, administration of prescription drugs provided by employees, non-prescription pain relievers, and treatment for work-related injuries. But if more “significant benefits” are provided, an employee may lose HSA eligibility. This does not apply to HRAs.

One way to avoid affecting an employee’s HSA eligibility is to charge fair market value for significant medical benefits provided at an onsite clinic or identify high-deductible health plan members and only charge them fair market value. Employees should be able to use their HSA, HRA, or a Flexible Spending Account (FSA) to pay for clinic expenses. (The IRS increased FSA contribution limits in 2023.) The method used to determine fair market value should be documented. It may be based on general market data or actual cost to the employer.

RELATED LEGISLATIVE ACTIVITY

HRA Availability Expanded

Effective Jan. 1, 2020, a rule proposed by the U.S. Departments of Labor, Treasury, and Health and Human Service took effect to allow employers to expand benefits offerings, including HRA coverage of qualifying medical expenses.

Among many provisions, the rule includes an “excepted benefit HRA” that is not required to comply with some provisions of ERISA and the ACA. Excepted benefits may include on-site clinics as well as limited-scope dental and vision, long-term care plans, hospital indemnity plans, and employee assistance programs (EAPs). The excepted benefit HRA is intended to be offered in conjunction with  a traditional group health plan to help cover the cost of  co-pays, deductibles, or other non-covered expenses. (Refer to this IRS news release to learn more about the rule.)

Preventive Care Tax Benefits Expanded

Effective July 17, 2019, the U.S. Department of Treasury issued Notice 2019-45 to allow HSA-HDHP plans the flexibility to cover specified medications and services used to treat chronic diseases prior to meeting the plan deductible. This allows employers offering HSA plans to cover certain medications and services used to treat chronic diseases on a pre-deductible basis in their clinics. (See Table 1 on page 3.)

Summary

On-site clinics provide an opportunity for employers to serve employees where it is convenient for them and manage referrals to external providers so they receive the best possible level of care. When providing nonoccupational services in an onsite clinic, it’s advisable to consult with attorneys and benefits administrators to ensure the delivery model complies with rules and regulations and takes optimal advantage of allowable preventive care benefits.