Several federal agencies have introduced proposed regulations on excepted benefits under the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (the Code), and the Public Health Service (PHS) Act related to limited wraparound coverage.
Excepted benefits are generally exempt from the requirements that were added to these laws by the Health Insurance Portability and Accountability Act (HIPPA) and the Patient Protection and Affordable Care Act (ACA).
The proposed rule changes will impact the Internal Revenue Service, the Treasury Department; EBSA, the Department of Labor (DOL); and the Centers for Medicare & Medicaid Services, Department of Health and Human Services. They are related to earlier excepted benefits rulemaking, made final in 2014, which provided guidance about when certain dental, vision and long-term care benefits are considered excepted benefits and thus not subject to the ACA insurance market reforms.
In the 2014 final regulations, regulators also stated their intention to publish regulations that addressed limited wraparound coverage in the future, taking into account the extensive comments received on this issue. As explained by the DOL, some group health plan sponsors asked whether certain limited benefits that “wrap around” employer-sponsored group health plan coverage could be considered an excepted benefit if these benefits are provided to employees for whom the employer’s group health plan coverage that is otherwise offered to them (i.e., their “primary” coverage) is unaffordable, and who instead obtain major medical coverage through the individual market, including through exchanges established via the ACA.
Specifically, the regulations noted that experts suggest that most workers who are offered minimum value coverage under their employer’s primary group health plan will not meet the criteria for that coverage to be considered “unaffordable” within the meaning of the statute and thus will not qualify for the premium tax credit for enrolling in individual health coverage through an exchange.
If a worker’s share of the premium for employer-provided coverage would cost more than 9.5% of that employee’s annual household income, the coverage is considered “unaffordable.” However, employers generally do not know their employees’ household incomes, and can take advantage of the three affordability safe harbors outlined in the final regulations.
Employees for whom coverage would be unaffordable might instead purchase individual health coverage through an exchange with a premium tax credit. While they might pay lower premiums through an exchange than they would pay for major medical coverage from an employer’s group health plan, the individual coverage might provide less-generous benefits or offer a different provider network than that provided under their employer’s group health plan.
The 2013 proposed regulations intended to allow employers to offer overall coverage comparable to the group health plan by providing these workers limited employer-sponsored coverage that would add to and “wrap around” the individual market coverage purchased through the exchange. If the employer chose to provide limited employer-sponsored wraparound coverage, that coverage would qualify as an excepted benefit and therefore would not preclude the worker from obtaining a premium tax credit to assist in purchasing the individual coverage through the exchange if the worker was otherwise eligible for a premium tax credit.
The various departments received general comments on the 2013 proposed regulations, as well as on the five conditions set for wraparound coverage to qualify as excepted benefits. The DOL says many comments suggested that limited wraparound coverage should be considered supplemental excepted benefits instead of limited excepted benefits. This would allow the wraparound coverage to be an integral part of the health plan—something that is currently against the excepted benefits rules. Some comments suggested simplifying wraparound coverage rather than the five conditions outlined, such as adopting a more subjective test so that reasonable efforts to comply with the conditions for excepted benefits would not cause a plan to fail to qualify. Others requested that the standards for limited wraparound coverage to qualify as excepted benefits track the same standards and safe harbors for applicable large employers under section 4980H of the Code and its implementing regulations, for ease of administration and consistency.
Many comments suggested modifications to the second condition of the 2013 proposed regulations, requiring that limited wraparound coverage be specifically designed to provide benefits beyond those offered by the individual health insurance coverage. Some suggested that the goal of limited wraparound coverage should be to fill gaps in cost sharing. Others disagreed, requesting that this condition be changed so that cost sharing would not be the primary purpose of the wraparound coverage, because individuals who wish to reduce their cost sharing can do so by purchasing a higher “metal level” of coverage. (Plans under the ACA receive a bronze, silver or gold rating.)
Many other comments and opinions were shared, the DOL says. After consideration of comments on the 2013 proposed regulations, the regulators published these new proposed regulations with respect to limited wraparound coverage. These proposed regulations seek comment on two options for limited wraparound coverage to be considered an excepted benefit.
The regulators intend that, after notice and comment, one or both options could be finalized. (That is, they are not necessarily alternatives and, therefore, could be implemented side by side). The regulations include a sunset date and would operate as a pilot program. While some elements of the proposal are the same as those in the previous proposal, this new proposal contains changes in response to suggestions and adds new elements for reporting and data collection to gather information to inform future rulemaking.
The proposed regulations list five requirements under which limited benefits provided through a group health plan that wraps around either eligible individual insurance or coverage under a Multi-State Plan (limited wraparound coverage) would constitute excepted benefits:
1. Covers Additional Benefits
The limited wraparound coverage would have to be specifically designed to wrap around eligible individual health insurance. That is, the limited wraparound coverage would have to provide meaningful benefits beyond coverage of cost sharing under the eligible individual health insurance. For example, the limited wraparound coverage could provide coverage for expanded in-network medical clinics or providers, or provide benefits that are not essential health benefits and that are not covered under the eligible individual health insurance. The limited wraparound coverage would not be permitted to provide benefits solely under a coordination-of-benefits provision and could not be solely an account-based reimbursement arrangement.
2. Limited in Amount
The second requirement is that the limited wraparound coverage be limited in amount. For this purpose, the annual cost of coverage per employee (and any covered dependents) under the limited wraparound coverage could not exceed the maximum annual contribution for health flexible spending accounts (FSAs), which is $2,500 in 2014, indexed in the manner prescribed under section 125(i)(2) of the Code, and the cost of coverage would include both employer and employee contributions towards coverage and be determined in the same manner as the applicable premium is calculated under a COBRA continuation provision. The bright-line $2,500 limitation is intended to be simpler to administer than the 15% cap set forth in the 2013 proposed regulations, DOL says.
The limited wraparound coverage must meet three requirements relating to nondiscrimination in order to qualify as excepted benefits. First, the wraparound coverage could not impose any preexisting condition exclusion, consistent with the requirements of section 2704 of the PHS Act (as incorporated into section 715 of ERISA and section 9815 of the Code) and implementing regulations. Second, the wraparound coverage could not discriminate against individuals in eligibility, benefits, or premiums based on any health factor of an individual (or any dependent of the individual), consistent with the requirements of section 702 of ERISA, section 9802 of the Code, and section 2705 of the PHS Act (as incorporated into section 715 of ERISA and section 9815 of the Code) and implementing regulations. Finally, neither the primary group health plan coverage nor the limited wraparound coverage could fail to comply with section 2716 of the PHS Act (as incorporated into section 715 of ERISA and section 9815 of the Code) or fail to be excludible from income with respect to any individual due to the application of section 105(h) of the Code (as applicable).
4. Plan Eligibility Requirements
The fourth requirement to qualify as excepted benefits would be that individuals eligible for the limited wraparound coverage cannot be enrolled in excepted benefit coverage that is a health FSA. In addition, plans must comply with one of two alternative sets of standards relating to eligibility and benefits. One set of plan eligibility requirements applies to wraparound benefits offered in conjunction with eligible individual health insurance for persons who are not full-time employees. A separate set of standards applies to coverage that wraps around certain Multi-State Plan coverage.
The last characteristic for limited wraparound coverage to qualify as excepted benefits is a reporting requirement, for group health plans and group health insurance issuers, as well as group health plan sponsors. A self-insured group health plan, or a health insurance issuer offering or proposing to offer Multi-State Plan wraparound coverage, reports to the Office of Personnel Management (OPM) information the agency reasonably requires to determine whether the plan or issuer qualifies to offer such coverage or complies with the applicable requirements of this section.
In addition, the plan sponsor of any group health plan offering either limited wraparound coverage that wraps around eligible individual health insurance or Multi-State Plan coverage must report to the Department of Health and Human Services information the department requires to determine whether the exception allows plan sponsors to provide workers with comparable benefits whether enrolled in minimum essential coverage under a group health plan offered by the plan sponsor, or a qualified health plan with additional limited wraparound coverage offered by the plan sponsor, without causing an erosion of coverage.
The DOL and the other federal agencies are asking for comments on the new proposed rules. Comments are due on or before January 22, 2015. Comments, identified by the subject line “Excepted Benefits,” may be submitted electronically on the Federal eRulemaking Portal, at http://www.regulations.gov. Follow the instructions for submitting comments.
Mail or hand delivery should be addressed to: Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention: Excepted Benefits.
Comments received will be posted without change to www.regulations.gov and available for public inspection at the Public Disclosure Room, N-1513, Employee Benefits Security Administration, 200 Constitution Avenue NW., Washington, DC 20210, including any personal information provided.
The full text of the proposed rulemaking is available here.