Leading-Edge Reproductive Benefits Raise Cost Concerns

Will more employers offer coverage of emerging fertility-related procedures? Should your company?

By Joanne Sammer Nov 5, 2015
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When Apple and Facebook announced last year that they would begin providing coverage for egg- and sperm-freezing procedures through their employee health benefits plan, they joined a relatively small group of employers offering a new echelon of leading-edge reproductive benefits. The question facing HR benefit managers is, will more companies offer coverage as egg freezing and other emerging fertility-related procedures become more commonplace, or will these benefits remain in a niche?

There are two schools of thought:

Keeping up. As fertility treatments and options grow in number and sophistication, employers may need to follow suit and cover these services. “This is the way a lot of changes in benefits occur, with larger, more-visible employers pushing the boundaries,” said Stephen Bowers, a member in the employee benefits and executive compensation department at law firm Cozen O'Connor in Philadelphia. “At some point, it becomes something that employees expect or becomes a consideration for them in choosing job opportunities. It’s sort of like an arms race in employee benefits.”

High costs. The counter-argument focuses on the cost of these technologies and procedures. The average price for one cycle of in vitro fertilization is $12,400, according to the American Society for Reproductive Medicine. Egg extraction is similarly expensive, and ongoing storage is an additional cost of at least several hundred dollars annually. That doesn’t include charges for fertilizing and implanting when the patient wants to conceive.

Many employers are concerned about health benefit costs and issues such as the looming excise tax on high-cost health plans set to take effect in 2018. So introducing coverage for expensive new types of health care that is not tied to an employee’s own health seems counterintuitive.

“Employers are taking some hard looks at their health plans and what they offer to employees and are paring things down a bit. I do not think that other large corporations are going to be jumping on this bandwagon to offer these kinds of benefits,” said Sharon Cohen, JD, a principal in the knowledge resources group at Buck Consultants in Washington, D.C.

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Introducing coverage for expensive new services
not tied to an employee’s own health
may seem counterintuitive.

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According to Mercer’s 2014 benefits survey, only 14 percent of employers with 500 or more employees offer “other advanced reproductive procedures,” such as egg freezing. However, 64 percent of these large employers offer some type of fertility-related coverage, including evaluation by a specialist (59 percent), fertility drug therapy (37 percent), in vitro fertilization (26 percent) and artificial insemination (25 percent).

Also, preliminary findings were released in November from the 2015 UBA Health Plan Survey, with responses from 18,186 health plans sponsored by 10,804 employers, including small to midsize businesses. The findings showed that 34.2 percent of employer-provided health plans provided no benefits for infertility services, while 36.7 percent of plans provided benefits for evaluation only, and 29 percent provided benefits for evaluation and treatment. These numbers have remained essentially the same for the past three years, United Benefits Advisors found.

The Tax Question

Another issue regarding coverage for newer fertility-related procedures relates to the tax deductibility of these benefits, as egg extraction and freezing do not easily fit into the usual definition of deductible health care expenses.

Consider a healthy 30-year-old woman who wants to put off childbearing for several years and wants to freeze her eggs to increase the chances that she can have children when the time comes. “There is no bodily dysfunction or even infertility involved,” noted Cohen. “These costs are not necessarily medical expenses that can be paid for by an employer on a tax-free basis.”

This also goes for the ongoing storage of the frozen eggs. Although qualified medical expenses as defined under the Internal Revenue Code include temporary egg and sperm storage, egg freezing could last for five to 10 years or even longer. “ ‘Temporary’ is not defined but that does not necessarily mean 10 years,” said Cohen. “I would say it requires pretty immediate use,” such as that involved when undergoing in vitro fertilization.

Tax deductibility could be much easier to argue in cases when a woman or man wants to freeze eggs or sperm for future use before undergoing chemotherapy or other procedures that could impact future fertility.

However, it is the uncertainty surrounding these questions that could make employers reluctant to add these benefits. While employers could still provide the benefit as part of an employee’s taxable compensation, that approach increases the cost of the benefit to employers because it increases employees’ pay and the employment taxes employers must pay on those additional amounts.

Legislative Action

Such legal and tax questions could be resolved sooner than expected. Consider how quickly other forms of fertility treatment moved from shocking to well-established and commonplace enough to be subject to state mandates for coverage. According to the National Conference of State Legislatures, 15 statesrequire insured health plans to either cover or offer coverage for infertility diagnosis and treatment. Given that many of these laws were passed in the 1980s, within a decade of the birth of Louise Brown, the first child born as a result of in vitro fertilization, it would not be surprising to see state legislature and the U.S. Congress take action to address issues related to egg freezing in the coming years.

“If egg freezing becomes more popular, there could be legislation to ensure the tax-free basis of egg-freezing benefits,” said Bowers. In the meantime, he suggested that employers currently offering these benefits could argue for their tax deductibility. “As long as the employer takes a reasonable and appropriate stance, I do not see a big appetite from the IRS to challenge them,” he said. “Health care is a hot button issue right now and this does not strike me as an area that the IRS would want to take a stance [against], unless an employer is attempting to abuse the process.”

Right for Your Workforce?

Tax and cost concerns aside, the primary question for employers is whether offering cutting-edge fertility benefits such as egg freezing will be compelling enough to help attract and retain key talent.

If egg freezing is something employees would appreciate knowing is available, even though only one or two might actually use the benefit, the potential cost could be outweighed by the value of these benefits as a recruiting tool. “That would make it worthwhile to implement and take on these challenges,” said Bowers.

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Article:

Egg-Freezing Benefit from Facebook, Apple Raises Workplace Questions, SHRM Online Diversity, October 2014

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