On December 24, 2013, the Departments of Treasury, Labor and Health and Human Services published a proposed rule to change the standards under which coverage is considered to be an excepted benefit. Whether health plan coverage is considered an excepted benefit is crucial to determining what rules apply to a plan. Plans that offer only excepted benefits are not subject to most health care reform rules (including the prohibition on annual limits, prohibition on waiting periods over 90 days, minimum cost-sharing requirements, the requirement to distribute an SBC, etc.). Three changes were proposed:
- The requirements to provide limited-scope dental and limited-scope vision benefits were modified so that a premium is no longer required for the benefits to be excepted. The option to opt out of the coverage is still required. Plans may rely on this new proposed rule through the end of 2014 or once final regulations are effective (no earlier than 1/1/2015).
- A new type of excepted benefit is permitted, called "wraparound coverage", meant to wrap around non-grandfathered individual health coverage. This coverage has several requirements, including that the employer must offer other minimum value group health coverage. This new type of coverage is proposed to be effective in 2015.
- Employee assistance programs were also specifically added as a type of excepted benefit (as was expected). This coverage also has several requirements, including the requirement that the benefits must not "provide significant benefits in the nature of medical care". Plans may rely on this new proposed rule through the end of 2014 or once final regulations are effective (no earlier than 1/1/2015).
Other excepted benefit rules remain unchanged. The other excepted benefit coverage options include:
Health FSAs: Plans that are health FSAs are excepted for a class of participants only if the employer offers other group health plan coverage (that is not just dental, vision or long term care coverage) to the class of participants where the maximum benefit payable to a participant under the health FSA is less than or equal to the greater of:
- two times the participant's salary reduction election under the arrangement for the year or
- Noncoordinated benefits: Coverage for only a specified disease or illness as long as
- it is provided under a separate policy, certificate, or contract of insurance;
- there is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and
- the benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor
- Supplemental coverage: most typically Medicare Supplementary coverage and/or TRICARE supplement programs
- Long-term care benefits
- Coverage for accident, disability, liability (including auto), worker's compensation, automobile medical payment insurance, credit-only insurance and coverage for on-site medical clinics
HRAs May Offer Dental and Vision Coverage as Excepted Benefits
Prior to the proposed changes, the excepted benefit regulations required the payment of a premium for limited dental and vision benefits to be considered excepted benefits. Since HRAs may only be funded by employer contributions, requiring a premium payment would jeopardize an HRA's tax status. The proposed regulations eliminate this requirement but do not remove or change the other requirements for limited dental and vision benefits to be considered excepted benefits. The proposed regulation provides:
(i) Limited-scope dental benefits, limited-scope vision benefits, or long-term care benefits are excepted if they are provided under a separate policy, certificate, or contract of insurance, or are otherwise not an integral part of a group health plan as described in paragraph (c)(3)(ii) of this section. ...The definition of dental and vision benefits remains unchanged. "Limited scope dental benefits are benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth)... Limited scope vision benefits are benefits substantially all of which are for treatment of the eye." For HRAs, this means that eligible expenses must be limited to dental and/or vision claims and the plan must provide a method for eligible employees/former employees to opt out of the coverage.
(ii) Not an integral part of a group health plan. For purposes of this paragraph (c)(3), benefits are not an integral part of a group health plan (whether the benefits are provided through the same plan or a separate plan) only if participants have the right to elect not to receive coverage for the benefits.
New Wrap-Around Excepted Benefit Option
The new wraparound coverage option allows an employer to provide some coverage to employees that do not enroll in the employer's group health plan. This option is not available until 2015. In order to provide this coverage a plan must meet all of the following requirements:
- Other Group Health Plan. The plan sponsor must sponsor another group health plan that provides minimum value (as defined in Code section 36B(c)(2)(C)(ii), generally means it covers at least 60% of costs) and that is affordable for a majority of the employees eligible for the group health plan. The wraparound coverage may only be offered to employees that are also eligible for this other group health plan.
- Individual Coverage. The employee must be enrolled in individual health insurance that is not grandfathered and does not consist solely of excepted benefits.
- Limited Coverage. The total cost of coverage under the wraparound plan may not exceed 15% of the cost of coverage under the other group health plan. The "cost of coverage includes employer and employee contributions towards the coverage and is determined in the same manner as the applicable premium is calculated under a COBRA continuation provision."
- Eligible Claims Limited. The wraparound coverage must not provide benefits only under a coordination of benefits provision. The plan may cover all or some the following:
- non-essential health benefits
- out-of-network care
- copays/coinsurance under the individual policy
- Nondiscrimination. Several requirements must be met:
- must not differentiate among individuals in eligibility, benefits, or premiums based on any health factor of an individual (or any dependent of the individual)
- must not impose any preexisting condition exclusion
- the other group health coverage offered by the employer must meet the nondiscrimination rules that apply to it (Code section 105(h) rules or similar rules - regulations for insured plans have not yet been proposed)
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