Proposed Rules Include Excepted Benefits Wraparound Coverage Option and EAP Guidance

Practical Law Legal Update 8-553-0905 (Approx. 6 pages)

Proposed Rules Include Excepted Benefits Wraparound Coverage Option and EAP Guidance

by Practical Law Employee Benefits & Executive Compensation

Excepted Benefits

Certain group health plan requirements under ERISA, the IRC and the PHSA, including changes under the Affordable Care Act (ACA), do not apply to group health plans in providing "excepted benefits." The proposed regulations would amend the scope of one of the four excepted benefits categories (known as limited excepted benefits), which includes:

Limited-scope vision or dental benefits.
Benefits for long-term care, nursing home care, home health care or community based care.

Under HIPAA regulations issued in 2004, vision and dental benefits are excepted if they are limited in scope and are either:

Provided under a separate policy, certificate or insurance contract.
Not an "integral" part of a group health plan, whether insured or self-insured (69 F.R. 78720 (Dec. 30, 2004)). Vision and dental benefits are not integral if participants:
- could elect not to receive coverage for the benefits; and
- who choose to receive coverage for the benefits paid an additional premium or contribution for them.

The proposed regulations would eliminate the requirement under the 2004 HIPAA regulations that participants pay an additional premium or contribution for limited-scope vision or dental benefits to qualify as benefits that are non-integral (and that were therefore be treated as excepted). The proposed change was made in response to concerns from employers who provide self-insured limited-scope vision and dental benefits with no employee contribution, who argued that they should not be required to charge participants a nominal contribution for the benefits to qualify as excepted.

Limited Wraparound Coverage

According to the Departments, some group health plan sponsors asked whether "wraparound" coverage could be provided for employees who choose to obtain coverage through an exchange because their employer premium is unaffordable as defined under the ACA (see Practice Note, Health Insurance Exchange and Related Requirements under the ACA). This coverage would permit employers to provide these employees with overall coverage comparable (factoring both the exchange and wraparound coverage) to that available through the employer's group health plan.

In response, the proposed regulations treat certain wraparound coverage provided under a group health plan as excepted benefits when the coverage is offered to individuals who:

Could receive such benefits through their group health plan if they could afford the premiums.
Do not enroll in the employer-sponsored plan because the premium is unaffordable.

To insure that wraparound coverage supplements, rather than replaces, group coverage (and does not favor high-income workers), limited wraparound coverage is an excepted benefit only if five conditions are met:

The coverage can wrap around only certain coverage provided through the individual market. Specifically, the individual health insurance coverage must:
- be non-grandfathered; and
- not consist solely of excepted benefits.
The limited wraparound coverage must be specifically designed to provide benefits beyond those offered by the individual health insurance coverage. Specifically, the coverage must either (or both):
- provide benefits that are in addition to EHBs; or
- reimburse the cost of health care providers considered out-of-network under the individual health insurance coverage.
The coverage must otherwise not be an integral part of a group health plan. An employer offering the limited wraparound coverage must sponsor another group health plan that meets minimum value (see 26 U.S.C. § 36B(c)(2)(C)(ii)) for the plan year, referred to as the primary plan. This primary plan must be affordable for a majority of the employees eligible for the primary plan, and only individuals who are eligible for the primary plan may be eligible for the limited wraparound coverage.
The total cost of coverage of limited wraparound coverage must not exceed 15% of the cost of primary plan coverage, which:
- includes both employer and employee contributions towards the coverage; and
- is calculated the same way as COBRA premiums.
The limited wraparound coverage must also satisfy several nondiscrimination standards. For example, the coverage must not:
- differentiate among individuals in eligibility, benefits or premiums based on an individual's or dependent's health factor;
- impose preexisting condition exclusions (consistent with the ACA, see Practice Note, Preexisting Condition Exclusions and Rescissions under the ACA); or
- discriminate in favor of highly compensated individuals (consistent with the ACA, see Practice Note, Nondiscrimination Requirements for Insured Group Health Plans under the ACA).

The Departments invited comment as to whether additional nondiscrimination standards are needed to ensure the coverage is available regardless of health status and to prevent employers from shifting high-cost employees to exchanges.

Employee Assistance Programs (EAPs)

In September 2013, the Departments issued guidance providing that for 2014:

An EAP constitutes excepted benefits only if it does not provide significant benefits in the nature of medical care or treatment.
Employers could use a reasonable, good faith interpretation of whether an EAP provides significant benefits in the nature of medical care or treatment (see Legal Update, Guidance Addresses the ACA's Impact on EAPs, HRAs and Health FSAs).

The proposed regulations include criteria for an EAP to qualify as excepted benefits beginning in 2015. Under the proposed rules, an EAP is considered excepted if:

It does not provide significant benefits in the nature of medical care (the Departments invite comments on how to define "significant").
The EAP's benefits cannot be coordinated with benefits under another group health plan. For an EAP to satisfy this condition:
- participants in the separate group health plan must not be required to exhaust benefits under the EAP before being eligible for benefits under the group health plan;
- participant eligibility for EAP benefits must not depend on participation in another group health plan; and
- EAP benefits must not be financed by another group health plan.
No employee premiums or contributions are required for participation in the EAP.
There is no cost sharing under the EAP.

According to the Departments, these criteria are intended to ensure that:

Employers can continue offering EAPs as supplemental benefits to other coverage.
In circumstances where an EAP with limited benefits is the only coverage (or the only affordable coverage provided to an employee), the coverage does not unreasonably disqualify an employee from otherwise being eligible for the premium tax credit for enrolling in coverage through an exchange (see Practice Note, Health Insurance Exchange and Related Requirements under the ACA).

Effective Date

Until the proposed regulations are finalized, and through at least 2014, the Departments will consider dental and vision benefits, and EAPs, that meet the proposed regulations' conditions to qualify as excepted benefits. If the final regulations or subsequent guidance are more restrictive than the proposed regulations, the final regulations or other guidance will not be effective earlier than January 1, 2015.

Practical Impact

Although the limited wraparound coverage offers employers an additional option for providing excepted benefits, the restrictions on when such coverage can be provided mean it will likely appeal to a relatively narrow range of employers. In particular, the wraparound coverage option is not available to employers who drop coverage or who otherwise do not offer minimum coverage. Under the rules as proposed, the wraparound coverage would only be considered an excepted benefit if the option is used to provide additional coverage to individuals for whom the employer's minimum value coverage is unaffordable. Moreover, offering wraparound coverage would not satisfy an employer's responsibilities under the ACA's employer mandate.

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