Excepted Benefits refer to programs not subject to HIPAA compliance.  They are called “excepted” because most plans must comply with HIPAA, “except for” certain categories of named programs. Health Care Reform later imported these categories to except them from PPACA compliance (see our previous Client Bulletin).  Recently, the Departments of Treasury, Labor and Health and Human Services issued proposed rules that would amend the regulations on excepted benefits regarding vision and dental benefits, as well as employee assistance programs.  These proposed regulations also create a new benefit class dubbed “wraparound coverage” which when provided under a group health plan, and meeting certain conditions is an excepted benefit.

These new rules would be effective for plan years starting in 2015.  However, until finalized regulations are issued, through at least 2014, the Departments will consider dental and vision benefits, and EAP benefits, meeting the described conditions of the proposed regulations to qualify as excepted benefits.

Background

Under HIPAA, in order to be a limited scope excepted benefit, the benefit must either (1) be provided under a separate policy, certificate, or insurance contract or (2) otherwise not be an integrated part of a group health plan.  In order for vision or dental not to be “integrated” in a plan, two requirements must be met. First, participants have the right to either elect or waive coverage and second; if dental or vision coverage is elected, there must be an additional premium or contribution. (Typically at least $1.)

Upon enactment of the Affordable Care Act (ACA), the Departments received comments from many self-insured employers.  Some comments expressed concern that although their limited scope benefits complied with pre-ACA requirements, due to their self-insured plans not charging an additional premium or contributions, these benefits became subject to ACA.

Thus, provisions such as the 90-day waiting period limitation and the prohibition on annual limits technically became applicable to some vision and dental plans. (Fully insured plans generally do not have this issue.)  For employers to institute a nominal charge can be administratively burdensome and often costs more than what is being collected.  Other employers argued that if their medical coverage is unaffordable to individuals, but their limited dental or vision is affordable, some individuals might become ineligible for premium tax credits on the Health Insurance Exchange (Marketplace). 

Limited Scope Vision and Dental Benefits

These newly proposed regulations are intended to level the playing field between insured and self-insured plans.  For example, eliminating the need for self-insured plan participants to pay an additional premium or contribution for limited scope vision or dental benefits would result in the benefits not being integrated with the medical plan, and thus advantageously qualifying as an “excepted benefit”.

Employee Assistance Program

An Employee Assistance Program (EAP) can provide a variety of employer-sponsored benefits that seek to prevent or mitigate personal or family problems that could adversely affect an employee’s health and work.  EAPs can include a wide array of benefits from assistance with alcohol or substance abuse to financial, legal, or grief counseling.

Typically these programs are employer-paid and provided through a third-party vendor.  An EAP that provides benefits for medical care would generally be considered a group health plan, and thus subject to HIPAA and the ACA market reform requirements - unless it qualifies as being an excepted benefit.

Previously, in September of 2013 the Departments issued guidance suggesting their intention to expand the excepted benefits regulations to include EAPs.  At that time transitional relief was granted to EAPs as being an excepted benefit, as long as the EAP does not provide significant benefits in the nature of medical care or treatment.  A definition of the term “significant benefits” was not provided in the guidance, so employers may use a reasonable, good faith interpretation of the term.  Some employees considered the COBRA trigger and whether an EAP triggered COBRA continuation benefit as evidence of whether the EAP benefit was “significant”.

The recently proposed regulations now provide conditions that must be met in order for an EAP to be deemed an excepted benefit as of 2015.  Each of the following four elements must be present:

  • The program cannot provide significant benefits in the nature of medical care. [The Agencies have requested comments as to what constitutes “significant benefits” in an EAP such as whether the EAP provides no more than 10 outpatient visits for mental health or substance use disorder counseling, an annual wellness checkup, and immunizations and diabetes counseling with no inpatient benefits.]
  •  No employee contributions or premiums for EAP participation;
  • No cost sharing under the EAP; and
  • The EAP’s benefits cannot be coordinated with benefits under another group health plan.

An EAP meets the last requirement of non-coordination of benefits if (1) participants are not required to exhaust benefits under the EAP before being eligible for benefits under the group health plan (the EAP cannot be a “gatekeeper”); (2) participant eligibility is independent of the group health plan; and (3) benefits are not financed by another group health plan. 
If the EAP meets all of the above conditions, then when offered as a supplemental benefit to other coverage, the EAP will be considered an excepted benefit and as such, will not block the participant’s eligibility for a premium tax credit on the Exchange/Marketplace. 

Limited Wraparound Coverage

Under the ACA, insured plans in the individual and small group markets must cover essential health benefits (EHBs). To this end, states are to adopt individual benchmark plans that would serve as a reference for EHBs.  The Agencies recognize that larger employers offer health plans to their employees (either self-insured or fully insured) in addition to the types of services included in the benchmark plans’ EHBs. As examples, the Agencies list various types of orthodontia, vision, long term custodial care, infertility and hospice.

A key, but formidably challenging ACA objective is to allow individuals with comprehensive employer-provided health insurance plans to maintain that current level of benefits. Although it is expected that under the ACA employer mandate most workers will be offered minimum value coverage, due to these comprehensive plans, it is also expected that the premiums for this coverage will be “affordable”, thus making employees ineligible for a premium tax credit in the Marketplace.  By contrast, the Agencies also recognize that some employer group health plans may be unaffordable for other employees. Although this employee group would maintain eligibility for premium tax credits under the Marketplace, the coverage provided will be less generous than the employer plan. The bottom line is that some workers will qualify for Exchange/Marketplace coverage with tax subsidy and find the new coverage they receive poorly compares to their old employer group plan.

Thus, the idea of “wraparound coverage” has been raised for employees for whom the employer premium is unaffordable and who obtain coverage through the Marketplace. Under this approach, employers could voluntarily furnish wraparound coverage to provide overall coverage for these employees that is comparable to the employer-provided group health plan. This concept suggests when an employee purchases individual coverage, and the employer providing a supplemental or wraparound coverage for the employee, the combined “layers” of coverage will keep the employee’s coverage “whole”.

There are two significant areas are of concern regarding this “wraparound” concept. First, employers will use ‘wraparound coverage” to replace current group health plans that do not provide minimum value. Second, employers could structure their plans so that low income workers receive fewer primary benefits than high income workers. To address and prevent these possible concerns the proposed regulations provide that in order not to have to comply with the ACA requirements, the wraparound coverage is required to be an excepted benefit.  Such wraparound coverage would only qualify as an excepted benefit under limited circumstances.

Wraparound coverage would only qualify as an excepted benefit if five conditions are met:

  • The wraparound plan wraps around non-grandfathered individual coverage and does not consist solely of excepted benefits. (e.g. dental, vision, or similar)
  • The coverage must be designed to provide benefits beyond those offered by the individual insured coverage. That is, benefits beyond EHBs, or reimbursement for out-of-network services. The primary purpose, however, cannot be the reimbursement of cost-sharing under the individual market plan, which prior guidance has suggested would not work under the ACA.
  • The coverage must not be an integral part of the employer’s primary group health plan. The primary plan must still offer minimum value coverage and be affordable for the majority of employees in that plan. Moreover, the wraparound coverage must only be available to those eligible for the primary plan.
  • The coverage must be limited in amount, with the total cost of wraparound coverage not exceeding 15% of the cost of coverage under the primary plan. The cost of coverage includes both the employer and employee contributions and is determined in the same manner as the COBRA premium.
  • The coverage must not differentiate in eligibility; benefits or premiums based on a health factor, nor discriminate in favor of highly compensated individuals. Further, the coverage must not impose any preexisting condition exclusion.

It is important to note that the sole provision of excepted benefits will not satisfy an applicable large employer’s responsibilities under the ACA Employer Mandate.  In other words, any such large employer would remain exposed to mandate penalty assessments.

Conclusion 

Strategic planning for health reform is fast becoming more imperative than ever.  Specific actions must be taken to help address the financial impact of fees like the one described in this Bulletin, as well as to adapt to the other new announcements.  We invite you to schedule a meeting with your HUB International adviser to review your organization’s particular circumstances and decide on the optimal financial and compliance strategy.

These recently proposed regulations appear to lend credence to the growing suspicion that coverage on the Marketplace may be inferior to employer sponsored coverage.  The proposed regulations are intended for plan sponsors whose goal is to provide health benefits to Marketplace-eligible employees that is, in total, comparable to the benefits offered through the sponsor’s minimum value group health plan. Thus, these newly proposed rules target a relatively narrow group of employers; those that offer minimum value coverage that is affordable for a majority of employees.

Offering wraparound coverage is optional and as noted above comes with some complex administration.  Thus, some plan sponsors may elect to increase employer contributions to ensure affordability of coverage for all employees.  Other employers may discontinue group health plan coverage, having employees purchase Marketplace coverage, and thus subjecting themselves to otherwise avoidable Employer Mandate penalties. Any further guidance issued on this, or any other ACA provision, will be discussed in future HUB Client Bulletins.

In the meantime, employers should spend some time to review their benefit plans.  First, consider reviewing dental and vision plans to ensure they are excepted benefits.  Next, review any EAPs as to the benefits that are provided, how they are paid for, and whether any coordination of benefits is required.

Helpful links

Federal Register: Proposed Regulations

HUB Client Bulletin: Exception for Certain Dental and Vision Benefits (2012)

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The discussion presented in this document is informational in nature and is not (and should not be construed as) a legal opinion or legal advice. We would be happy to discuss any information above with you or your attorney.