Departments Release Guidance on Dental and Vision Plans, EAPs, and "Wraparound" Coverage

On December 20, 2013, the Departments of Treasury, Labor, and Health and Human Services (collectively, the Departments) jointly issued proposed rules (Proposed Regulations) that would amend the regulations regarding excepted benefits under various federal laws, including the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (the Code). In general, excepted benefits are exempt from the market reform and other requirements that were added to ERISA and the Code by the Affordable Care Act (the ACA), including the rules prohibiting annual and lifetime dollar limits on essential benefits, the 90-day waiting period rule, and the requirement to cover certain preventive care with no cost sharing. Excepted benefits are also exempt from the ACA's transitional reinsurance program (TRP) and Patient-Centered Outcomes Research Institute (PCORI) fees.

The Proposed Regulations amend existing regulations applicable to "limited scope" dental and vision plans, and add two new classes of excepted benefits: employee assistance plans (EAPs) and "wraparound" coverage, which would be considered an excepted benefit if it is used to provide additional coverage to individuals and families enrolled in non-grandfathered individual health insurance and for whom minimum value coverage under the employer's group health plan is offered but unaffordable.

The Proposed Regulations attempt to level the playing field between insured and self-insured dental and vision coverage by eliminating the requirement that participants pay an additional contribution for a self-insured dental or vision benefits to be considered excepted. They also provide much-needed guidance for employers that were struggling with how to administer their EAPs in light of the ACA's new market reforms.

Effective Date

The Proposed Regulations would be effective for plan years starting in 2015. However, until rulemaking is finalized, through at least 2014, the Departments will consider dental and vision benefits, and EAP benefits, meeting the conditions of the proposed regulations to qualify as excepted benefits. The Proposed Regulations for wraparound coverage would be effective for plan years starting in 2015.

To the extent final regulations or other guidance with respect to dental or vision benefits or EAPs is more restrictive on plans and issuers than the Proposed Regulations, the final regulations or other guidance will not be effective prior to January 1, 2015.

Limited Scope Dental and Vision Plans

The concept of "excepted benefits" originated with the portability rules enacted by the Health Insurance Portability and Accountability Act ("HIPAA") and has been subject to regulatory interpretation since 1997. Because the ACA coverage mandates are incorporated into the same HIPAA statutory provisions, the concept of "excepted benefits" also applies. Therefore, determining whether a benefit is "excepted" is crucial to determining whether the ACA coverage mandates will apply to the benefit.

Under existing HIPAA regulations, dental and vision benefits are excepted if they are limited in scope (described as benefits, substantially all of which are for treatment of the mouth or eyes, respectively) and are either: (1) provided under a separate policy, certificate, or contract of insurance; or (2) are otherwise not an integral part of a group health plan. The applicable HIPAA regulations provide that benefits are not an integral part of a plan if participants have the right to elect not to receive coverage for the benefits, and if participants elect to receive coverage for such benefits, they pay an additional premium or contribution for it. According to Department of Labor guidance, even a nominal premium or contribution would be sufficient for this purpose.

The Proposed Regulations would eliminate the existing requirement that participants pay an additional premium or contribution for limited-scope vision or dental benefits to qualify as excepted benefits. Therefore, under the Proposed Regulations, and until there is further guidance to the contrary, limited scope dental and vision benefits will be excepted as long as participants have the right to elect not to receive coverage for the benefits.

This should provide some relief to plan sponsors that were forced to consider the impact of the ACA on their otherwise limited scope dental and vision plans because medical, dental and vision benefits were provided as a single package with one consolidated employee premium or contribution.

Employee Assistance Programs (EAPs)

Employee assistance programs (EAPs) are typically employer-sponsored programs that offer a wide-ranging set of benefits to address circumstances that might otherwise adversely affect employees' work and health. Benefits may include short-term substance use disorder or mental health counseling or referral services, as well as financial counseling and legal services. They are typically available free of charge to employees and are often provided through third-party vendors. To the extent an EAP provides benefits for medical care, it would generally be considered group health plan coverage, which would generally be subject to the ACA's market reform requirements, unless the EAP meets the criteria for being excepted benefits.

As indicated previously, through at least 2014, the Departments will consider an EAP to constitute "excepted benefits" only if the EAP does not provide significant benefits in the nature of medical care or treatment. For this purpose, employers may use a reasonable, good faith interpretation of whether an EAP provides significant benefits in the nature of medical care or treatment.

The Proposed Regulations also articulate criteria for an EAP to qualify as "excepted benefits" beginning in 2015. Under the Proposed Regulations, EAP benefits are excepted if the following four criteria are met:

  1. The EAP cannot provide significant benefits in the nature of medical care (the Departments invite comments on how to define "significant" for these purposes).
  2. Benefits under the EAP cannot be coordinated with benefits under another group health plan. The Departments propose three conditions to meet this standard:
    • Participants in the group health plan must not be required to exhaust benefits under the EAP before an individual is eligible for benefits under the group health plan. In other words, the EAP may not be a "gatekeeper;"
    • Eligibility for benefits under the EAP must not depend upon participation in another group health plan; and
    • Benefits under the EAP must not be financed by another group health plan.
  3. The EAP must be provided free of charge – no employee premiums or contributions may be required.
  4. There can be no participant cost sharing under the EAP.

These criteria are intended to ensure that EAP coverage will not unreasonably disqualify an employee from otherwise being eligible for the premium tax credit for enrolling in coverage through an Exchange.

Limited Wraparound Coverage

The Proposed Regulations add a new type of coverage to the list of excepted benefits: limited wraparound coverage. For this purpose, the type of wraparound coverage that would qualify as excepted refers to additional employer-provided coverage to individuals and families enrolled in non-grandfathered individual health insurance coverage and for whom minimum value coverage under an employer's group health plan is offered but is unaffordable. (In general, coverage is "unaffordable" for these purposes if the employee's cost for single coverage under the employer's plan exceeds 9.5 percent of the employee's household income.)

The Proposed Regulations for wraparound coverage would be effective for plan years starting in 2015, and contain five requirements for the coverage to be excepted:

  1. The wraparound plan must wrap around a non-grandfathered individual health insurance plan that does not consist solely of excepted benefits.
  2. The wraparound plan covers benefits or providers not covered by the individual health insurance coverage.
    • The wraparound coverage must provide coverage for benefits that are not essential health benefits, or reimburse the cost of health care providers that are considered out-of-network under the individual health insurance coverage, or both. The wraparound coverage may also provide benefits for participants' otherwise applicable cost sharing under the individual health insurance policy.
    • The wraparound coverage must not provide benefits only under a coordination-of-benefits provision.
  3. An employer that sponsors the wraparound coverage must also sponsor another group health plan that meets the 60% "minimum value" requirement and that is affordable for a majority of eligible employees (the "primary plan"). Only individuals eligible for the primary plan may be eligible for the wraparound coverage.
  4. The total cost of the wraparound coverage must not exceed 15 percent of the primary plan cost of coverage. For this purpose, the cost of coverage includes both employer and employee contributions towards coverage and is determined in the same manner as an applicable premium is calculated under COBRA.
  5. The wraparound plan must be nondiscriminatory, which requires satisfaction of the following conditions:
    • The wraparound coverage must not differentiate among individuals in eligibility, benefits, or premiums based on any health factor of an individual or dependent;
    • The wraparound coverage must not impose any preexisting condition exclusion; and
    • Neither the primary plan nor the wraparound plan may be discriminatory under applicable nondiscrimination rules for insured or self-insured group health plans that apply in determining whether benefits discriminate in favor of highly compensated individuals.

As these conditions show, the wraparound coverage category of "excepted benefits" is very limited—wraparound coverage may not replace group coverage for employers who drop coverage or who otherwise do not offer minimum value coverage.

Action Steps for Employers and Plan Sponsors

  • Employers should review their dental and vision plans in light of the Proposed Regulations. Employers that were contemplating "un-bundling" their dental and vision benefits from medical benefits to preserve their excepted status may continue to offer such coverage for one consolidated employee contribution as long as employees have the right to elect not to receive coverage for the dental and vision benefits.
  • Employers should engage in a reasonable, good faith review of their EAPs to assess whether their EAP qualifies as an excepted benefit by not providing significant benefits in the nature of medical care or treatment.
  • Employers should consider whether to offer a wraparound plan starting in 2015, which would enable employers to supplement individual health insurance coverage purchased by employees who are offered group health plan coverage that is minimum value, but for whom the coverage is unaffordable.
  • Sponsors of multiemployer group health plans maintained pursuant to a collective bargaining agreement ("CBA") that offer bundled medical, dental and vision benefits should also consider the impact of the Proposed Regulations. Plans that were prohibited under the terms of a CBA from changing employee contributions during the term of the agreement may now have an avenue for the dental and vision benefits to remain excepted without having to charge an additional contribution, assuming that amending the plan to provide for the separate election for dental and vision coverage already exists or is permitted under the agreement.