Excepted benefits are generally exempt from the health care reform requirements added to the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code (the Code) and the Public Health Service Act (PHSA) by the Health Insurance Portability and Accountability Act (HIPAA), the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, ACA). The U.S. Departments of the Treasury, Labor and Health and Human Services (collectively, the Departments) recently issued proposed regulations that would expand the definition of limited excepted benefits to: (1) include limited-scope dental or vision benefits for which no participant contribution is required under a self-insured health plan, (2) permit plan sponsors to offer limited wraparound coverage to certain individuals who would be eligible to receive such coverage through a group health plan, but who cannot afford such benefits and (3) establish the criteria under which Employee Assistance Programs (EAPs) can qualify as excepted benefits.
Dental and Vision Benefits
Under current HIPAA regulations, dental and vision benefits provided under a self-insured group health plan will only qualify as excepted benefits if participants have the right to elect not to receive such benefits and if participants elect to receive the benefits, they must pay an additional premium or contribution for the coverage. The proposed regulations eliminate the requirement that participants pay an additional premium or contribution for limited-scope vision or dental benefits in order for such benefits to qualify as excepted benefits. Therefore, under the proposed regulations, limited-scope dental and vision benefits provided under a self-insured plan will be considered excepted benefits if participants have the right to elect not to receive such coverage.
Limited Wraparound Coverage
The proposed regulations add a new type of benefit to the list of excepted benefits. Under the proposed regulations, the Departments will treat certain “wraparound” coverage provided under a group health plan as excepted benefits when it is offered to individuals who are eligible to receive such benefits through an employer’s group health plan, but who do not enroll in the employer-sponsored plan because the premium is unaffordable under the ACA. If an employer adopts this change, an otherwise eligible employee who purchases basic coverage through the Health Insurance Marketplace will also be allowed to wrap around the more generous benefits and broader provider network that an employer’s group health plan might provide. In order to be treated as an excepted benefit, the wraparound coverage must meet five conditions:
The coverage must wrap around individual market coverage that is non-grandfathered and does not consist solely of excepted benefits;
The coverage must be designed to provide either benefits that are in addition to “essential health benefits” or reimburse the cost of health care providers considered out-of-network under the individual market coverage, or both. In addition, the purpose of the coverage cannot be to coordinate benefits such that the coverage only pays benefits whenever the individual market policy does not cover all or part of a medical expense. Finally, the limited wraparound coverage may also reimburse participants’ otherwise applicable cost sharing under the individual policy, but that cannot be the primary purpose of the coverage;
The plan sponsor offering the coverage must sponsor another group health plan meeting the 60-percent minimum value requirement under the ACA for the plan year (the primary plan). The primary plan must be affordable for a majority of the employees eligible for such plan, although the Departments seek input on what definition of “affordable” should be used for this purpose. The limited wraparound coverage would only be available to individuals eligible for the primary plan;
The coverage must be limited to 15 percent of the cost of coverage (including employer and employee contributions) of the primary plan offered to employees eligible for the wraparound coverage. The regulations explain that if an employer provides more than one primary plan option (e.g., PPO, HMO), the Departments would consider the 15-percent standard to be met if the average value of the primary plan options meets the 15-percent standard, even if one of the plan options does not satisfy the standard. The cost of coverage is determined in the same way that the applicable premium is calculated under the COBRA continuation rules, but up to 100 percent of the cost (as opposed to 102 percent); and
The coverage must not (a) impose any preexisting condition exclusion; (b) discriminate in favor of highly compensated individuals; or (c) differentiate among individuals in eligibility, benefits or premiums based on any health factor of an individual (or any dependent of the individual).
If the above conditions are satisfied, the employer-provided wraparound coverage will constitute an excepted benefit and, therefore, would not disqualify an employee from eligibility for the premium tax credit and cost-sharing reductions available for coverage in the Health Insurance Marketplaces.
Generally, if an EAP provides benefits for medical care, it is considered group health plan coverage. If the EAP does not meet the requirements for being an excepted benefit, then such coverage is subject to the HIPAA rules and market reforms of the ACA. Recognizing the difficulty of applying such rules and reforms to the wide spectrum of employer EAPs, the regulations state that an EAP will qualify as an excepted benefit if it satisfies the following four criteria:
The EAP cannot provide significant benefits in the nature of medical care. The Departments requested comments on how to define “significant” for this purpose;
The EAP benefits cannot be coordinated with benefits under another group health plan;
No employee premiums or contributions can be required to participate in the EAP; and
No cost sharing is permitted under the EAP.
The proposed regulations would be effective for plan years starting in 2015. Until the regulations are finalized, the Departments will consider benefits meeting the conditions of the proposed regulations to qualify as excepted benefits.
Employers should review their dental, vision and EAP benefits to determine whether the benefits now meet, or could be designed to meet, the expanded definition of excepted benefits in the proposed regulations. Employers should conduct an analysis to determine the feasibility of providing the limited wraparound coverage to eligible employees and whether it makes sense for the employers’ population. Finally, if changes are made to plans to amend existing benefits or add benefits that will qualify as excepted benefits under the expanded definition added by the proposed regulations, employers should update plan documents and summary plan descriptions and review and revise enrollment materials and employee communications as necessary to reflect any changes.