Federal agencies expound on mandate to cover over-the-counter COVID-19 tests

Federal agencies recently provided “clarification (opens a new window)” regarding their Jan. 10, 2022, reinterpretation of a 2020 Congressional mandate that group healthcare plans provide coverage of federally-approved COVID-19 tests with no member cost sharing. The reinterpretation led regulators to require group health plans to cover not just COVID-19 tests ordered by a healthcare provider, but over-the-counter (OTC) tests obtained without an order from a healthcare provider as well.

We wrote (opens a new window) about the reinterpretation just a month ago, and summarize the recent clarifications below.

The $12 out-of-network safe harbor

In the January guidance regulators allow for group plans to limit the amount they pay or reimburse for OTC tests obtained by plan members from out-of-network suppliers to $12 (or, if less, the actual cost of the OTC test), as long as the plans make OTC tests available with no cost sharing via what the regulators call “direct coverage,” essentially meaning in-network in-person and direct-to-consumer access to OTC tests with no cost sharing.

Specifically, “direct coverage” – and thus access to the “$12 safe harbor” – means plans must provide for both: (i) in-person access to OTC tests with no out-of-pocket cost to the plan member from suppliers such as a pharmacy network or other retail merchants, and/or one or more standalone drive-through or walk-up distribution sites, including a site that operates independently of a pharmacy or other retailer, and (ii) a cost-free, direct-to-consumer access option like a mail-order option, with orders placed online or over the telephone.

The “direct coverage” requirement spawned numerous questions from plans, questions regulators sought to answer in the most recent guidance. For example, regulators say:

  • “Direct coverage” requires plan members to have adequate in-network in-person and direct-to-consumer access to OTC tests. But it doesn’t mean that the plan must make available every approved OTC COVID-19 test, nor that plans must offer multiple direct-to-consumer mechanisms; it means that in most cases, plans must provide OTC COVID-19 tests through at least one in-person method and at least one direct-to-consumer shipping method.

  • In-person access must ensure that plan members can obtain OTC tests through an adequate number of locations, which could include pharmacies and other retailers, or independent distribution sites set up by, or on behalf of, a plan. Whether there is adequate access is a fact question turning on all the relevant circumstances, such as the location of members, current utilization of the plan’s pharmacy network by its members, and how the plan notifies members of the retail locations, distribution sites, or other mechanisms for obtaining tests in person, as well as which tests are available under the in-person access program.

  • A direct-to-consumer program is one that makes OTC tests available other than at an in-person location. A direct-to-consumer program must allow an enrollee to place an order for OTC COVID-19 tests to be shipped to them directly, but does not have to provide exclusive access through any one entity. Thus, for example, if a plan provides direct in-person coverage of OTC COVID-19 tests through specified retailers, and those retailers maintain online platforms where individuals can also order tests to be delivered to them, the plan has simultaneously provided both in-person access and a direct-to-consumer shipping mechanism.

  • When providing OTC COVID-19 tests through a direct-to-consumer shipping program, plans must cover the reasonable cost of shipping and sales tax.

  • Regardless of how a plan satisfies the prerequisites for the “$12 safe harbor,” it must communicate to plan members which OTC tests the plan is making available, and how the members may obtain them.

  • A plan that would, but for temporary OTC test kit supply shortages, meet the “direct coverage” standard will still be able to apply the $12 limit (or actual cost, if less), for OTC kits obtained outside of the plan’s direct coverage program.

Plans can limit coverage to OTC tests purchased from established retailers

A plan may limit coverage of OTC COVID-19 tests to tests purchased from established retailers that one would typically expect to sell such tests. Plans may refuse to reimburse the expense for OTC tests purchased from a private individual via an in-person or online person-to-person sale, or from a seller that uses an online auction or resale marketplace (e.g., buying OTC test kits from, say, someone named Rory, if she were selling kits over eBay from her garage).

A plan’s policy in this regard could include requiring reasonable documentary proof of purchase that clearly identifies the product and seller, such as a UPC code or similar number, the original receipt from the seller or other documentation to verify that the test kit qualifies for coverage under the mandate.

COVID-19 tests that can’t be read at home do not fall within the OTC test kit mandate

The coverage requirements for OTC test kits (i.e., up to eight tests per member per 30-day or calendar month period) do not apply to COVID-19 tests that use a self-collected sample but require processing by a laboratory to return results (e.g., a home-collection PCR test that can be purchased directly by consumers). However, although such a test does not fall within the mandate for coverage of OTC test kits, it might fall within the earlier mandate that plans cover federally approved or authorized COVID-19 diagnostic tests ordered by a healthcare provider.

No double-dipping when seeking reimbursement for an OTC test

The portion of the cost of OTC COVID-19 tests paid or reimbursed by a plan cannot, of course, also be reimbursed by a health flexible spending account (FSA) or health reimbursement arrangement (HRA); that is, a plan member cannot be reimbursed more than once for the same expense.

Federal regulators encourage plans to advise individuals not to seek reimbursement from a health FSA or HRA for the cost of OTC COVID-19 tests paid or reimbursed by the plan and not to use a health FSA or HRA debit card to purchase OTC COVID-19 tests for which the member intends to seek reimbursement from the medical plan. If an individual mistakenly receives reimbursement from a health FSA or HRA for OTC COVID-19 test costs covered by a plan, the individual should contact the health FSA or HRA administrator regarding potential correction procedures.

Similarly, if an individual has the cost of an OTC COVID-19 test paid or reimbursed by a medical plan, FSA or HRA, any double-dipping reimbursement of that expense from the individual’s health savings account (HSA) is not a legitimate medical expense reimbursement. If an individual mistakenly takes a distribution from an HSA for OTC COVID-19 test costs paid or reimbursed by a plan, the individual must either (i) include the distribution in gross income, or (ii) if permitted by IRS guidance, repay the distribution to the HSA.

Download alert (opens a new window)Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.