The Unexpected Tax Consequences Of Overturning Roe V. Wade

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Roe v Wade news headline with gavel on a copy of the United States Constitution


Caroline Rule of Kostelanetz & Fink LLP discusses the post-Roe tax complications for employers covering abortion-related interstate travel expenses.

David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: wading through a post-Wade world.

On June 24, the Supreme Court issued a decision in the case of Dobbs v. Jackson Women’s Health Organization, which considered whether the right to an abortion was protected under the Constitution. The majority in the issued decision overturned the nearly-50-year-old precedent of Roe v. Wade.

While the case doesn’t address tax issues, there’s always a tax angle. And the final outcome does have implications for both federal and state taxes.

This week we’re looking at some of the federal tax complications. Joining me now to talk more about this is Tax Notes reporter Caitlin Mullaney. Caitlin, welcome back to the podcast.

Caitlin Mullaney: Hi, David. Thank you so much for having me again.

David D. Stewart: To start off, how about if you give us some background on the Dobbs decision?

Caitlin Mullaney: Well, when the Dobbs decision came down, tax changes were probably not at the top of anyone’s mind. But it truly does open a lot of questions with the tax treatment of employer-provided travel benefits for abortion care that will now require employees to cross state lines.

After the decision came down, a lot of companies vowed to provide abortion care access and assistance to employees. But with new employee benefits always comes the question of, who fits the tax bill?

David D. Stewart: Now, I understand you recently spoke with someone about these tax complications. Can you tell us about your guest and what you talked about?

Caitlin Mullaney: Yes. I recently spoke with Caroline Rule. She’s a partner in the New York office of Kostelanetz & Fink. She spoke with me about the tax treatment of a variety of the options that employers have to offer for travel benefits for abortion care post-Dobbs, and some of what we may expect to see in the future.

David D. Stewart: All right, let’s go to the interview.

Caitlin Mullaney: Caroline, thank you so much for being with us today, and welcome to the podcast.

Caroline Rule: Hi, I’m really happy to be here.

I just want to preface what I’m going to say today by explaining that I’m not an expert in healthcare law. I am concerned specifically about when an employer can provide tax-free abortion benefits to its employees.

But the tax issues in this area are inevitably intertwined with all these healthcare statutes. An employment law attorney will be a necessary part of a team determining the fine details of how to deal with abortion travel after Dobbs.

Caitlin Mullaney: Thank you so much for prefacing that, Caroline. My first question is about all the employers that have promised to cover abortion travel for their employees post-Dobbs. What option do these employers have to provide these travel benefits to the employees without the benefits being taxed?

Caroline Rule: Well, there are a great number of possible ways an employer can deal with it. The problem is that employers are going to be operating across state lines, and facing a checkerboard of inconsistent and quickly evolving laws.

Employers can offer an abortion-related benefit that covers the cost of the medical care for the abortion in addition to travel to obtain the abortion. With respect to the cost of medical care, businesses can deduct the cost of employee health coverage. They have been able to for a long time.

Internal Revenue Code section 213(d) describes deductible medical care as “care for the diagnosis, cure, mitigation, treatment or prevention of disease” and then “or for the purpose of affecting any structure or function of the body.” Since the 1973 revenue ruling, and in the IRS’s current Publication 502, which is entitled “Medical and Dental Expenses,” abortion is recognized as medical care under the second phrase of section 213(d).

As a result, an employer’s group health plan can provide a benefit for medical abortion costs on a tax-free basis. So long, obviously, as the abortion is not illegal in the state where it is provided. A Treasury regulation specifically provides that medical care does not include expenses for illegal treatment.

Providing abortion benefits under an employee’s group health plan is the most straightforward path to providing abortion-related benefits. A group plan is already compliant with federal and all state statutes, and is already in place, and this path is most unlikely to involve HIPAA issues for employers.

Presently, most group health plans either don’t cover travel expenses or limit those expenses to travel to centers of excellence, centers that provide high-cost procedures like transplants. Offering abortion travel costs will likely need an amendment to a group health plan.

Among other issues, employers must consider whether limiting travel to abortion could create a disparate treatment risk — i.e. only females — and also whether they want to limit travel to the closest state where an individual can obtain a legal abortion.

Outside of group health insurance plans, there are a number of different arrangements — none of them perfect — which an employer can use for tax advantage reimbursement to employees.

WASHINGTON, DC – DECEMBER 01: Demonstrators gather in front of the U.S. Supreme Court as the … [+] justices hear arguments in Dobbs v. Jackson Women’s Health, a case about a Mississippi law that bans most abortions after 15 weeks, on December 01, 2021 in Washington, DC. With the addition of conservative justices to the court by former President Donald Trump, experts believe this could be the most important abortion case in decades and could undermine or overturn Roe v. Wade. (Photo by Chip Somodevilla/Getty Images)

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The first is a health reimbursement arrangement, or HRA. This is a tax advantage arrangement that reimburses employees for qualified healthcare costs. It must be entirely employer funded, must be carefully designed to comply with their ACA, ERISA, HIPAA and COBRA, and related regulations.

But it would cover medical expenses as defined under IRC section 213(d). This kind of arrangement is limited to participants in the employer’s group health plan, but it is not subject to contribution or benefit limits.

Then there’s a variation: an excepted benefit health reimbursement arrangement, or EBHRA. This was first created in 2019, and it’s a tax advantage benefit that must be offered to all employees, although a participant is not required to be a part of the group health coverage. There is a funding cap each year with cost of living increases. The funding cap is $1,800 this year and $1,950 next year.

But an EBHRA must not provide significant medical care, is not integrated with another group health plan, and an employee does not need to contribute to it to participate. There’s no guidance yet about what constitutes significant healthcare. We don’t know whether that will apply to abortion-related travel or abortion costs. This probably will. If costs are unsubstantiated by an employee, the cost will be income to the employee.

Another option is a flexible spending account. This is a tax advantage account that can be used to pay for unreimbursed section 213(d) expenses. But if the employee does not contribute, an employer contribution is limited to $500. This plan can be offered to employees who don’t participate in group health plan.

A variation is an excepted benefit healthcare flexible spending account, which is quite a mouthful, EBFSA. Under this, an employee contributes pretax compensation to be used for medical expenses. Employers may also contribute. Contributions are limited currently to $2,800 per year. Also, payments from an EBFSA cannot be more than the greater of twice the employee’s contribution, or the employee’s contribution, plus $500.

Finally, there’s an employee assistant program. This has to be separate from any group healthcare plan, and participants cannot be charged a premium or cost to participate. Again, this cannot provide significant benefits in the nature of medical care, about which we have no guidance currently. If it does provide medical coverage, a medical travel benefit might tip it over into being determined to provide significant medical care benefits, and therefore subject it to all kinds of regulatory requirements, including under the ACA.

Those are the main ways in which an employer can offer to reimburse abortion-related costs and abortion-related travel costs.

Caitlin Mullaney: In your article, you mentioned another fee cap. That’s the $50-a-day IRS limit on out-of-state lodging during medical travel. Specifically, that anything above this must be included as taxable income. Which is crazy — that in 2022, $50 a day is still the limit.

Do you see any way that employers can get around the tax bill for the excess falling to the employees?

Caroline Rule: No, unfortunately not. Remember, this is only for lodging. It’s not for reasonable travel expenses, which would include plane travel, mileage rate for car travel, etc., nor the abortion proceeding itself. It is only for lodging in connection with travel, primarily for an essential to an individual’s medical care. But the $50 limit does seem absurd.

And these amounts have not been updated since at least the 1980s, or even before. Greater amounts can be paid, but they will constitute income to the employee, which is subject to withholding taxes.

The wording of this provision is ridiculous. It says, “Amounts paid for lodging,” and then says, “not lavish or extravagant under the circumstances will be covered.” Now, I don’t know where you can stay for $50 a night that is lavish or extravagant. But anyway, that is the limit. There’s no way around it.

Another $50 may be paid for a medical necessary travel companion, such as a parent of a minor child. Meals are only reimbursed if they have been obtained in the hospital.

Caitlin Mullaney: Wow. It’s crazy that those have not been updated in almost 40 years at this point.

Caroline Rule: Yes, I agree. But there doesn’t seem to be any movement on that at the moment.

Caitlin Mullaney: When it comes to the abortion-related travel benefits, are there different considerations for employers who provide a fully insured group health plan versus employers who provide a self-funded health plan?

Caroline Rule: Absolutely, definitely. Industry giants like Amazon, Disney, Netflix, Microsoft, and others have promised abortion-related benefits. These huge organizations usually have self-funded plans, which are essentially their own insurance plan. Under these plans they can determine for themselves what their plans will cover.

Anaheim, CA USA – September 3, 2015: Disneyland 60th celebration castle with people This year … [+] Disneyland celebrates its 60th aniversary of been open. On this day the park celebrated with fireworks and over 150 thousand people. People are exiting the park after a long day of fun and celebrations.


These large business entities’ group health plans are regulated by ERISA, which generally preempts state insurance laws and regulations. So these can provide an abortion benefit without really any limit other than that the abortion must be legal in the state where it’s provided.

Fully insurance plans are plans purchased by an employer directly from an insurance company. These are regulated by the states, and are subject to individual states’ insurance laws. This is because ERISA preemption has a savings clause whereby a fully funded insured plan is not actually considered insurance.

A few states require fully insured plans to cover abortion. Those are California, New York, Illinois, Maine, Oregon, and Washington. Other states prohibit abortions within their state boundaries. Essentially, fully insured plans are at the mercy of what their carriers will cover.

As I said before, tax-exempt covered abortion services must be legal where provided. If the employer’s group health plan, and this would be a fully funded one, is offered by a health insurance company licensed only in a state where abortion is illegal, the employer can’t offer abortion-related expenses under its plan. But it can consider some of the other options I already described.

In addition to the travel reimbursement benefit, an employer may just expand an existing personal time off or vacation policy, or even a separate paid time off specifically for traveling out of state for medical care.

But this must not be discriminatory, usually meaning it must be offered to all employees regardless of gender. It wouldn’t be specific to abortion. Employers should limit the information they require from an employee to support the use of this paid time off in order to avoid HIPAA problems.

Obviously, providing this kind of benefit is going to be a significant new expense for an employer. They would have to decide whether it’s worth it for their employees’ satisfaction, and whether they can afford it.

Caitlin Mullaney: With states like Texas already imposing civil penalties for aiding individuals in receiving abortion care, what would you think is the best option for companies to provide these tax-exempt benefits for interstate travel without fearing the consequences of these new state penalties?

Caroline Rule: States could bar companies from operating in a state if they cover abortion costs. Some laws might allow shareholders to sue for breach of fiduciary duty, or even impose criminal liability on a corporation’s executives. But these kinds of civil and/or criminal penalties, I believe, are likely to be held preempted by federal laws.

If you remember Judge Brett Kavanaugh’s concurrence in the Dobbs case, he stated, admittedly without any support, that there is a right of interstate travel. He could have cited a 1975 Supreme Court opinion in Bigelow v. Commonwealth of Virginia, which held that Virginia could not prevent its residents traveling to New York to obtain an abortion.

But this is an untested area of law, and cases will take years to resolve. Employers are a bit between a rock and hard place.

ERISA itself doesn’t preempt state criminal laws of general applicability. That’s the term of art. But it’s unclear what laws will be generally applicable, or whether the kind of laws we’re talking about would be held to be targeted at employee benefit plans concerning abortion, and would so be preempted.

The best option, I think, for these entities is to closely monitor what states are doing, what the federal government is doing in response, and stay on top of it all to decide where they can go from here.

Caitlin Mullaney: The Dobbs decision, at this point, is just over two months old, but the effects of the decision were immediate to so many individuals and businesses. As you mentioned in your article, there are tax, healthcare, and employment attorneys already monitoring the ripple effects of the decision. Have you seen any questions arising out of it thus far in practice?

Caroline Rule: Other than the many I’ve already talked about, not specifically. The Biden administration has taken an expressed position that Americans must remain free to travel to another state to seek the care they need. The Department of Justice has currently committed itself to defending that right.

In addition, Biden issued an executive order directing the Department of Health and Human Services (HUD) to expand access to medical abortion pills. That’s a particularly thorny issue because after COVID, HUD has allowed telehealth appointments for people seeking medical abortion pills.

382724 01: Three RU-486 Mifeprex abortion pills are held in a hand December 1, 2000 in Granite City, … [+] Illinois. The Hope Center for Women is the first area abortion clinic to distribute the new pills that terminates a pregnancy. The RU-486 pill was approved in September and can be taken by women up to the seventh week of pregnancy. The drug blocks the hormone that sustains the embryo and then unhooks it from the uterine wall. (Photo by Bill Grenblatt/Liaison)

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There are questions about if you have a telehealth visit with a provider in another state, who then mails the medications into a state where abortion is illegal, what are the implications of that? That’s something that’s going to evolve over time.

HUD also issued guidance reminding that abortion remains legal in many states and also that birth control is still covered under the ACA with no out-of-pocket costs. You would think that would be obvious, but I was amazed that in Justice Clarence Thomas’s concurrence he suggested that the court may revisit Griswold v. Connecticut, which is a 1965 Supreme Court decision holding that the Constitution protects the liberty of married couples to buy and use contraceptives.

How, in this day and age, that could be revisited, I just have no idea. But then I never expected that Roe v. Wade could be overturned.

There also, there’ve been attempts to bring federal legislation banning payment for interstate travel. Sen. Marco Rubio (R-Fla.) introduced a bill to that effect recently. It’s not going to happen under this administration, but with the new Congress coming up, we really don’t know what is going to happen.

Caitlin Mullaney: That was actually my last question. If, in a post-Dobbs world, you could see a time when the Supreme Court decision is matched with the federal ban on providing tax-exempt benefits for abortion travel?

Caroline Rule: It’s hard for us, or me, to picture that right now, but yes, it is a possibility. Certainly a possibility if we changed to a different administration. That will bring up a whole new set of questions about whether, if any, travel can be covered.

Caitlin Mullaney: Well, sadly, that’s all the time we have for today. I want to refer any interested people to this article. It’s titled, “Tax Implications of Dobbs for Interstate Travel Expenses to Obtain Abortions.”

Ms. Rule, thank you so much for taking the time to talk to us today.

Caroline Rule: Thank you very much for having me.