Proposed Rules Expand Exceptions from Healthcare Reform

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On December 24, 2013, the Departments of Treasury, Labor, and Health and Human Services (collectively, the “Departments”) jointly issued proposed rules that would expand the scope of arrangements that would constitute “excepted benefits” under the portability rules enacted by the Health Insurance Portability and Accountability Act (“HIPAA”). This is important not only for HIPAA portability purposes but because excepted benefits are exempt from the market reform and other requirements of healthcare reform, such as rules prohibiting annual and lifetime dollar limits on essential benefits and excessive waiting periods, and the requirement to cover certain preventive care with no cost sharing.

Specifically, the following changes have been proposed:

1.         The existing requirement that participants pay an additional premium or contribution for limited-scope vision or dental benefits to qualify as excepted benefits would be eliminated. Accordingly, as proposed, these changes would cause limited scope dental and vision benefits to be excepted as long as participants have the right to elect not to receive coverage for the benefits.

2.         An employee assistance plan will be an excepted benefit if the arrangement does not provide significant benefits in the nature of medical care or treatment. (The proposed rules do not provide guidance on what constitutes a “significant benefit”, so plan sponsors will be required to rely on a good faith interpretation of the law until final regulations are issued.)

Effective for plan years beginning in 2015, the EAP must satisfy the following additional conditions:

  • Benefits under the EAP cannot be coordinated with benefits under another group health plan. In order to meet this standard, the Departments have proposed that the following conditions be met:
    • 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.
    • Eligibility for benefits under the EAP must not depend upon participation in another group health plan.
    • Benefits under the EAP must not be financed by another group health plan.
  • The EAP must not require employees to pay premiums or contributions for coverage.
  • The EAP must not require employees to pay any portion of the cost of services under the arrangement.

3.         “Wraparound” coverage 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 (i.e. the employee’s cost for single coverage under the employer’s plan exceeds 9.5 percent of the employee’s household income), provided the following additional requirements are met:

  • The 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.
  • The total cost of the wraparound coverage must not exceed 15 percent of the primary plan cost of coverage (i.e. employer and employee contributions).
  • The wraparound plan must wrap around a non-grandfathered individual health insurance plan that does not consist solely of excepted benefits.
  • The wraparound plan covers benefits or providers not covered by the individual health insurance coverage, as follows:
    • 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. Note, 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.
  • The wraparound plan must be nondiscriminatory.

These changes are generally effective for plan years starting in 2015. However, plan sponsors may rely on changes regarding limited scope dental and vision benefits and employee assistance plans through at least 2014.  As a result, plan sponsors will want to review their existing arrangements and determine whether any changes are necessary to ensure treatment as an excepted benefit under these rules.