Ohio recently became the 25th state to legalize the use of medical marijuana for certain qualifying diseases and conditions. Despite the “growing” popularity of these state laws, marijuana remains classified as a Schedule I substance and is illegal under federal law. According to the Drug Enforcement Administration, Schedule I substances have no accepted medical use and there is a high potential for abuse.1 As a result of its Schedule I classification, marijuana cannot be assigned a National Drug Code (NDC). Thus, a pharmacy benefit manager (PBM) cannot adjudicate claims for marijuana using its standard system. Moreover, the dispensing sites for medical marijuana are not within most PBM networks.

Plan sponsors that are considering covering medical marijuana outside of their pharmacy benefits should consider the potential tax implications of offering it as a benefit. Plan participants cannot use HSA/FSA/HRA funds to purchase marijuana as it is still illegal under federal law and federal tax regulations govern these plans.2 Aside from paying income tax on any distributions for non-qualified medical expenses from these  accounts, individuals are required to pay an additional 20 percent tax on such impermissible distributions from these accounts.3 Additionally, reimbursement of drugs that are illegal under federal law may run contrary to federal rules governing the deductibility of employer paid health benefits. Thus, a health plan may lose beneficial tax treatment and/or an individual may have to report the value of the benefits received for medical marijuana as income. The reimbursement for non-qualified benefits under a cafeteria plan may be subject to such reimbursements/payments to FICA, FUTA, Medicare tax or income tax withholding.

Interestingly, Ohio employers should note employer protections contained in the new state legislation that seemingly will allow employers to continue to maintain drug-free workplace policies.4 The following employer protections are included in the legislation:

  • Employers are not required to permit or accommodate an employee’s use, possession or distribution of medical marijuana.
  • Employers may refuse to hire, discharge, discipline, or otherwise take adverse employment action against an individual for his/her use, possession, or distribution of marijuana.
  • Employers may establish drug testing policies, drug-free workplace policies and zero-tolerance policies.
  • The new law does not permit an individual to file a claim against an employer for refusing to hire, discharging, discriminating, retaliating or otherwise taking adverse employment action against an individual related to medical marijuana.
  • Workers’ compensation administrators may continue to grant rebates and discounts on premium rates to employers that participate in a drug-free workplace program.
  • Employees who are discharged from employment as a result of medical marijuana usage will be considered to have been discharged for just cause if the termination was a result of a violation of an employer’s drug-free workplace policy.

While the new legislation provides these safeguards, prudent employers should consider the interaction between this law and other state and federal disability discrimination laws. In order to avoid potential employment issues, employers should make the review of these policies a “high” priority.

1. https://www.dea.gov/druginfo/ds.shtml
2. https://www.irs.gov/pub/irs-pdf/p502.pdf
3. https://www.irs.gov/pub/irs-pdf/f8889.pdf
4. https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA131-HB-523 


Zachary Hostetler, J.D., MBA

Zachary Hostetler, J.D., MBA

Senior Vice President, Client Solutions

Zach serves as senior vice president, client solutions providing strategic consulting to Employers Health employer members.