The U.S. Departments of Labor, Health and Human Services, and the Treasury have published final rules to amend the definition of excepted benefits to include certain limited coverage that wraps around individual health insurance.
The final rules permit group health plan sponsors, in limited circumstances, to offer wraparound coverage to employees who are purchasing individual health insurance in the private market, including in the Health Insurance Marketplace. These include benefits that are not generally medical benefits but do afford some medical coverage (auto liability, workers’ compensation); health coverage that is not medical coverage (dental, vision, long-term care); benefits that are not coordinated with medical benefits (specific disease coverage, fixed dollar indemnity coverage); and coverage that is supplemental to medical coverage such as Medicare supplement policies. Excepted benefits are not subject to the ban on dollar limits or pre-existing condition clauses of the Affordable Care Act (ACA) and do not qualify as minimum essential coverage. An individual must still pay the individual mandate penalty if they only have excepted benefit coverage and do not qualify for a shared responsibility requirement exception. A large employer who only offers excepted benefits may still be required to pay the employer responsibility penalty, however, individuals are not disqualified from receiving premium tax credits towards the purchase of individual coverage through the public exchange marketplaces if they are only offered excepted benefits by their employers.
The rule sets forth two pilot programs for limited wraparound coverage. One pilot allows wraparound benefits only for multi-state plans in the Health Insurance Marketplace. The other allows wraparound benefits for part-time workers who enroll in an individual health insurance policy or in Basic Health Plan coverage for low-income individuals established under the Affordable Care Act. These workers could, under existing excepted benefit rules, qualify for a flexible spending arrangement alternative to this wraparound coverage. Timing for publication of these final rules makes 2015 plan year implementation impossible or impractical for most plans, therefore coverage only qualifies if it is offered no earlier than Jan. 1, 2016, and no later than Dec. 31, 2018, under the pilot program.
Wraparound Coverage Requirements
For wraparound coverage to qualify as excepted benefits it must meet five requirements:
- Covers Additional Benefits: The limited wraparound coverage has to provide meaningful benefits beyond coverage of cost sharing under the eligible individual health insurance or Multi-State Plan coverage. Qualifying coverage in the final rule include reimbursement for the full cost of primary care, the cost of prescription drugs not on the formulary of the primary plan, ten physician visits per year, services considered to be out-of-network by the primary plan, access to onsite clinics or specific health facilities at no cost, or benefits targeted to a specific population (such as coverage for certain orthopedic injuries), home health coverage, or coverage of other benefits that are not covered as essential health benefits (EHBs) under the primary plan.
- Limited in Amount: For limited wraparound coverage to qualify as excepted benefits 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 or FSAs ($2,550 for 2015) or 15 percent of the cost of coverage under the primary plan. 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.
- Nondiscrimination: The wraparound coverage cannot impose any pre-existing condition exclusion, discriminate against individuals in eligibility, benefits, or premiums based on any health factor of an individual (or any dependent of the individual) or discriminate in favor or highly compensated employees.
- Plan Eligibility Requirements: Individuals eligible for the limited wraparound coverage cannot be enrolled in excepted benefit coverage that is a health flexible spending account (FSA). To qualify as excepted benefits, coverage is required to comply with one of two alternative sets of standards relating to eligibility and benefits: one set of plan eligibility requirements for wraparound benefits offered in conjunction with eligible individual health insurance for persons who are not full-time employees, and a separate set of standards for coverage that wraps around certain Multi-State Plan coverage.
- Reporting: A self-insured group health plan, or a health insurance issuer offering Multi-State Plan wraparound coverage, will need to report to U.S. Office of Personnel Management (OPM), in a form and manner specified in OPM guidance. In addition, the plan sponsor of any group health plan offering any type of limited wraparound coverage will report to the Department of Health and Human Services (HHS) information to determine whether the exception for limited wraparound coverage is allowing 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 enrolled in eligible individual health insurance, BHP coverage, or Multi-State Plan coverage, with additional limited wraparound coverage offered by the plan sponsor, without causing an erosion of coverage.
The final regulations are effective beginning May 18, 2015.