HRB 86 - Excepted Benefit Proposed Regulations
Released January 6, 2014I Download as a PDF January 6, 2014 --
One of the many challenges presented by the Affordable Care Act (ACA) relates to what are known as “excepted benefits”. Excepted benefits
are exempt from some, but not all laws impacting employee benefits including but not limited to the HIPAA portability rules, as well as the market provisions of the ACA. On December 24, 2013, the ACA’s governing agencies (DOL, IRS and HHS) issued proposed regulations
addressing certain of these excepted benefits; specifically, limited-scope dental and vision benefits and employee assistance programs (EAPs). In addition, the regulations propose a new type of excepted benefit known as a “limited wraparound benefit”.
Limited-scope Dental and Vision Benefits
As background, a limited scope dental or vision benefit is excepted if coverage is provided under a separate and independent policy; or, if it is not a separate and independent policy, for example, in the case of a self-funded situation, the dental or vision plan is not integral with the health plan. What this means is that the participants must have the right to elect or decline the dental or vision coverage; and if elected, there must be a separate cost for the coverage. These regulations propose to eliminate the separate cost requirement. Thus, a limited scope dental or vision plan, including a self-funded plan, can be excepted without obligating the plan to charge a separate premium for the benefit.
Employee Assistance Programs (EAP)
Generally, an EAP that provides significant coverage in the form of medical benefits is subject to the ACA. Guidance to date provides that as long as the medical care provided by the EAP is not significant, the EAP would be considered excepted. These regulations propose that in 2015 and beyond, four conditions must be met for the exception to apply:
- The EAP cannot provide significant medical care.
- The benefits under the EAP cannot be coordinated with another health benefit plan. Specifically, health coverage cannot be contingent upon first accessing coverage under the EAP, and the EAP benefit cannot be contingent on participating in the health plan.
- The EAP cannot be financed by another group health plan.
- There cannot be any cost-sharing imposed by the EAP.
Limited Wraparound Coverage
The regulations propose a third type of excepted benefit known as a limited “wraparound” benefit. Relevant to employers subject to ACA’s shared responsibility requirement, the wraparound coverage would be available to individuals for whom the employer coverage is deemed unaffordable. Important to this wraparound coverage is that the employer must offer coverage that meets both minimum value (pays at least 60% of total allowed cost of benefits under the plan) and is affordable (the employee’s contribution does not exceed 9.5% of his/her household income) for the majority of its employees.
The premise behind the wraparound coverage is that if the employer coverage is unaffordable to certain employees, the employee could forego the employer coverage and obtain individual coverage together with the wraparound coverage. The employer would, of course, risk an employer shared responsibility penalty for failure to offer adequate coverage at an affordable rate. Therefore, whether this wraparound concept will be attractive to employers remains to be seen.
Requirements of Wraparound Coverage
According to the proposed regulations, wraparound coverage would be deemed an excepted benefit if all of the following criteria are met:
- The wraparound coverage must be coordinated with a non-grandfathered individual policy. The individual policy cannot be excepted coverage.
- The wraparound coverage must cover non-essential health benefits, or reimburse the cost of care provided by out-of-network health care providers, or both. And, such coverage can cover cost-sharing under the individual policy; though, the coverage of cost sharing cannot be the only benefit that the wraparound policy provides.
- The plan sponsor offering such wraparound coverage must sponsor another group health plan that meets the minimum value standard and the affordability standard for a majority of its employees. Only individuals eligible for this primary plan may be eligible for the wraparound coverage.
- The cost of the wraparound coverage can be no greater than 15%, including both the employer and employee share, of the cost of the primary coverage.
- The wraparound coverage cannot discriminate as to eligibility, benefits, or premiums based on health status; nor can it discriminate as to salary.
Comments on these proposed regulations must be submitted by February 24, 2014. Employers can rely on these proposed regulations for purposes of limited scope dental and vision plans, and for EAPs. If final guidance is more restrictive, its effect will be prospective. Time will tell whether and how the rules surrounding the wraparound benefit proposal plays out. This wraparound concept is not available until regulations become final; at the earliest, this would be 2015.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
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