Excepted Benefits: What Are They and Do They Really Escape PPACA?

Last year, the IRS, DOL and HHS released final regulations concerning an expanded definition of “excepted benefits.” Excepted benefits are generally exempt from HIPAA requirements and from most of the Affordable Care Act’s (ACA) insurance market reforms. Those rules addressed dental/vision benefits, employee assistance programs and “wraparound coverage.” They also set forth conditions that must be satisfied before they could be considered excepted. 

Recently, the agencies used a newly published FAQ to examine “supplemental” coverage. Supplemental coverage is similarly useful for plan design strategies because it can escape health care reform provisions. Benefits are excepted supplemental benefits if they provide for Medicare or TRICARE supplemental coverage. In order for coverage to be similar to Medicare or TRICARE, the Departments established four criteria that must be met to qualify:

  • Coverage must be provided by a separate policy, certificate, or contract of insurance that is issued by an entity that does not provide the plan’s primary coverage (Thus, there cannot be self-insured similar coverage that is voluntary). 
  • The program must be specifically designed to fill gaps in primary coverage.
  • Cost of the supplemental coverage may not exceed 15% of the cost of primary coverage.
  • Group supplemental coverage cannot differentiate among individuals in eligibility, benefits, or premiums based upon any health factor. 

The Departments noted their intent to propose that coverage of additional categories of coverage would be considered to “fill in gaps in primary coverage,” and thus fit into the carve out for an excepted benefit, only if the additional covered benefits are not Essential Health Benefits (EHBs). Determination of an EHB is determined by the state in which the coverage is marketed. If any benefit covered under the supplemental coverage is an EHB in the marketed state, the coverage would not be an excepted benefit, and thus subject to the ACA’s insurance market reforms.

Although this new FAQ is significant and concerning, until the rules are finalized, enforcement will not be imposed for compliance failure with the ACA for any coverage that provides benefits that are not EHBs, meets the current existing criteria and has been filed and approved with the state. Additionally, coverage will be considered to “fill the gaps in primary coverage,” even if not including cost-sharing provisions, as long as the benefits are not covered by the primary group health plan and are not EHBs in the state.

Essential Health Benefit benchmark plans for each of the states can be found here

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Frances K. Horn , J.D., PHR, Chief Compliance Officer for HUB International’s Central Region. Her expertise includes all aspects of health care reform, ERISA, COBRA, HIPAA and related statutory and legislative obligations. She regularly conducts seminars and client training on Health Care Reform, Agency Audits, HIPAA and various other compliance issues. Horn holds a Juris Doctorate degree from Duquesne University School of Law and Bachelor of Science degree from Geneva College.