In December 2013, the IRS, DOL and HHS issued proposed regulations on “excepted benefits,” which are generally exempt from HIPAA’s portability rules and Health Care Reform’s benefit mandates. The proposed regulations would make it easier for dental and vision coverage to qualify as excepted benefits, and would create new classes of excepted benefits for certain employee assistance programs (EAPs) and for supplemental Exchange coverage (called “wraparound” coverage). Until final regulations are issued – and at least through 2014 – the agencies will treat dental and vision coverage and EAPs as excepted benefits if they satisfy the conditions in the proposed regulations, which are summarized below. However, the proposed rules for wraparound coverage cannot be relied upon pending issuance of final regulations.
Dental and Vision Benefits. Under current regulations, limited-scope dental or vision benefits1are excepted benefits if they are:
- Insured benefits issued under a separate policy, or
- Insured or self-funded benefits that are not integral to the employer’s medical plan. Vision/dental benefits are not “integral” to the medical plan if employees have the right to opt-out of the benefits and, if they elect the coverage, they pay a separate premium or contribution.
To make it easier for dental/vision coverage to qualify as an excepted benefit, the proposed regulations would eliminate the separate premium or contribution requirement under #2. Thus, dental/vision coverage would qualify as an excepted benefit if offered under a separate policy (#1) or if participants have the right to opt-out (#2).
The agencies explained that this change would “level the playing field” between insured and self-funded coverage, as insured dental/vision coverage currently can qualify as an excepted benefit (under #1, above) without charging employees a separate premium.
Employee Assistance Programs (EAPs). EAPs that provide benefits for medical care are treated as group health plans (GHPs) subject to HIPAA’s portability rules and Health Care Reform’s benefit mandates unless the EAP qualifies as an excepted benefit. Under the proposed regulations, EAPs that satisfy all of the following requirements will constitute excepted benefits:
- The EAP cannot provide significant benefits in the nature of medical care.2
- The EAP cannot be coordinated with benefits under another GHP.3
- The EAP cannot require employee premiums/contributions for participation.
- The EAP cannot impose any cost-sharing.4
Wraparound Coverage. The agencies noted that many employer-sponsored GHPs offer richer benefits than Exchange coverage, and for some employees the GHP coverage is not affordable under PPACA. Some employers asked the agencies whether they could provide supplemental “wraparound” coverage for employees who cannot afford the employer’s GHP and instead obtain subsidized coverage through the Exchange – so that the overall coverage provided to these employees (taking into account both the Exchange coverage and the wraparound coverage) is comparable to the GHP coverage. To accommodate this request, the proposed regulations would treat such wraparound coverage as an excepted benefit provided the coverage meets certain requirements.5
The requirements are geared to prevent abuse – namely, to prevent employers from dropping GHP coverage and replacing it with wraparound coverage, and to prevent employers from structuring the wraparound coverage so that low-income employees receive fewer benefits than high-income employees.
Not Intended As Legal Advice.
- Dental or visions benefits are “limited scope” if substantially all of the benefits are for treatment of the eyes or mouth, as applicable. Labor Reg. § 2590.732(c)(3)(iii).
- The agencies requested comments on whether an EAP that provides no more than 10 outpatient visits for mental health or substance abuse disorder counseling, an annual wellness checkup, immunizations, and diabetes counseling, with no inpatient benefits, should be considered to provide “significant” medical benefits. Also see note 4, below.
- An EAP won’t be considered “coordinated” with benefits under another GHP if:
• Participants are not required to exhaust EAP benefits before being eligible for benefits under another GHP;
• A participant’s eligibility for the EAP is not dependent on participation in another GHP; and
• EAP benefits are not financed by another GHP.
- Prop. Labor Reg. § 2590.732(c)(3)(vii). Note that the proposed rules follow-up on guidance the agencies issued in September 2013, which stated that until final regulations are issued (and at least through 2014), the agencies would consider an EAP to constitute excepted benefits only if the EAP does not provide significant medical care benefits. For this purpose, the guidance permitted employers to use a reasonable, good-faith interpretation of whether an EAP provides “significant” medical care benefits. See Notice 2013-54, Q/A #9.
- The wraparound coverage must meet all of the following requirements:
- It must wrap around individual, non-grandfathered coverage that does not consist solely of excepted benefits.
- The coverage must be designed to provide benefits beyond those offered by the individual coverage – that is, benefits beyond essential health benefits or reimbursement for out-of-network services.
- The coverage cannot be an integral part of the employer’s GHP. Also, the GHP must offer minimum essential coverage and be affordable under PPACA for the majority of the employees eligible for that plan. The wraparound coverage must only be available to those eligible to participate in the GHP.
- The coverage must be limited in amount – that is, the total cost of wraparound coverage cannot exceed 15% of the cost of coverage under the GHP. (The cost of coverage includes both employee and employer contributions and is determined in the same manner as the COBRA premium.)
- The coverage must not be discriminatory – it cannot differentiate in eligibility, benefits or premiums based on a health factor, or impose any preexisting condition exclusion. In addition, neither the wraparound coverage nor the GHP can be discriminatory under Code § 105(h) and PHSA § 2716, as applicable, regardless of whether the coverage is insured or self-funded.