Over the last several years, a handful of companies in competitive industries have begun rolling out oocyte cryopreservation (egg freezing) as an employee benefit offering. The idea is pretty straightforward: young employees may not be ready to have children just yet for any of a number of reasons, but they want to ensure the greatest possible odds of a successful pregnancy if and when they decide to have kids down the road. We've previously written about some of the employment law considerations on this topic, but this post explores some of the benefits-related considerations that come into play.
General Coverage Considerations
At the outset, companies considering this offering should be aware that while generally well-received, egg-freezing is not uniformly viewed as a friendly perk. Notably, some literature suggests that the message could be viewed as encouraging employees to sacrifice family goals to further career goals. By and large, however, it appears that the benefit is mostly viewed favorably by employees.
Further, companies should be aware that this benefit is not cheap. On average, egg extraction alone can cost roughly $10,000 per round, with additional cost for annual storage fees exceeding $1,000. As such, anecdotally it appears that companies offering this type of benefit often apply a coverage cap to limit upside exposure (e.g., $20,000 lifetime limit).
Finally, it's important to note that while the science surrounding cryopreservation continues to advance, this procedure still has a relatively low success rate. As such, from an employee relations standpoint it is important to communicate what this benefit offers (and that there are no guarantees).
Structure of Offering
While there are an abundance of options for structuring an egg-freezing benefit, our understanding is that most companies offer it as a component of their medical plan, simply adding it as a covered benefit. That said, many administrators do not have the systems in place to process claims for egg-freezing extraction or storage, so most companies carve out administration to a specialty third-party administrator.
As noted below, however, companies concerned about the potential tax consequences of this benefit might consider offering it on a stand-alone, voluntary basis so that the broader employee population does not incur tax consequences.
Taxation of Benefit
Generally speaking, the IRS does not recognize as taxable income amounts received or paid under employer accident or health plans for qualifying medical expenses. Qualifying medical expenses generally do not include amounts paid for services that are not considered medically necessary. To our knowledge, the IRS has not clearly or directly opined on whether egg freezing would be considered medically necessary.
That being said, there appears to be a general consensus that the benefit (both the extraction as well as the storage fees) could potentially be offered on a tax-free basis if two conditions are met:
- Infertility Diagnosis - the egg-freezing follows some sort of diagnosis of infertility or challenged fertility; and
- Short-term - the egg-freezing is only temporary in nature. While the IRS has not opined specifically on how long is too long, the agency has unofficially suggested that use must be "imminent," such as within the same plan year.
So, companies offering this benefit and considering how to treat the benefit for tax purposes might get more comfortable offering the benefit on a tax-free basis if provided as an infertility benefit for a woman scheduled to undergo chemotherapy or to allow transfer of eggs to a surrogate.
It's less clear how the IRS would view the taxation of the benefit if offered as a long-term family planning technique, although some would argue that infertility should be broadly construed in this context to include current egg extraction in anticipation of future fertility struggles at an older age.
To the extent a company wants to avoid the tax question, it could either require employees who enroll in the benefit to pay for coverage on a post-tax basis (if this is offered as a one-off insurance benefit), or it could impute income for persons enrolling in the benefit equal to the fair market value of the coverage.
If and when this benefit becomes more prevalent, the IRS may opine more directly on the taxation and parameters for pre-tax treatment. In the interim, employers considering offering this benefit should work closely with their tax or legal advisor to establish a sound structure.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.