Comments Sought on Proposed ‘Excepted Benefits’ Rule

Employers could offer “wraparound” coverage to augment public exchange policies

By Stephen Miller, CEBS Dec 24, 2014

Federal agencies are seeking public comment on a proposed rule that would amend the definition of “excepted benefits” to include certain limited wraparound coverage. The rule was published in the Federal Register on Dec. 23, 2014.

Under the proposed rule, employers that sponsor group health plans could, in limited circumstances, offer wraparound coverage to employees who purchase individual health insurance in the private market, including through the Affordable Care Act’s (ACA) public health insurance exchanges.

According to a post on the Health Affairs Blog by Timothy Jost, a law professor at Washington and Lee University in Virginia, excepted benefits “are generally not subject to Affordable Care Act requirements, such as the ban on dollar coverage limits or preexisting conditions clauses.” As a result, “individuals offered excepted benefits by their employers are not thereby disqualified from receiving premium tax credits to purchase individual coverage through the marketplaces.”

Jost also explained that wraparound coverage “allows employers to offer extra coverage that can wrap around the individual, essential health benefit, coverage that low-wage employees can get through the exchange, essentially granting them benefits equivalent to those enjoyed by higher-wage employees. The proposed rule attempts to describe the conditions under which wraparound benefits could be offered as excepted benefits so that they would provide a real benefit to low-wage employees without disqualifying them from receiving primary individual coverage through the exchange or displacing those benefits.”

According to a statement by the issuing agencies—the U.S. departments of Labor (DOL), Health and Human Services (HHS), and the Treasury—the proposed rule “would give employees who otherwise may not be able to get generous employer-based benefits access to high level benefits. It responds to suggestions made on a proposed rule [issued in December 2013] from a wide range of stakeholders, including business groups supportive of the idea. The proposed rule would give businesses, including small businesses, new flexibility to meet the unique needs of their workforces.”

In his blog post, Jost added that “Rules on vision coverage and employee assistance programs were finalized by the agencies in October, 2014 but the wraparound coverage rule proved much more controversial and the agencies decided to hold the proposal for further consideration.”

Wraparound Coverage Requirements

The proposed rule includes five requirements for wraparound coverage to qualify as excepted benefits:

  1. Covers additional benefits. The limited wraparound coverage would have to provide meaningful benefits beyond coverage of cost sharing under the eligible individual health insurance. For example, wraparound coverage could provide coverage for expanded in-network medical clinics or providers, or could provide benefits that are not considered “essential health benefits” and that are not covered under the employee’s ACA-eligible individual health insurance.
  2. Limited in amount. The average per-employee cost for wraparound coverage could not exceed the maximum employer contribution for flexible spending accounts, currently $2,500 annually.
  3. Nondiscrimination. The wraparound program could not impose any pre-existing condition requirements or discriminate based on health status in eligibility, benefits or premiums. Neither the primary nor wraparound coverage could discriminate in favor of highly compensated employees.
  4. Plan eligibility requirements. Employees eligible for the limited wraparound coverage cannot be enrolled in excepted benefits coverage that is a health flexible spending account. In addition, plans must comply with one of two alternative sets of standards relating to eligibility and benefits. One set of plan eligibility requirements applies to wraparound benefits offered in conjunction with eligible individual health insurance for persons who are not full-time employees. A separate set of standards applies to coverage that wraps around certain multistate plan coverage.
  5. Reporting. Employers that offer wraparound coverage would have to report to HHS required information to ensure that the coverage complies with program requirements and that the program is not contributing to erosion of employee coverage. In addition, a self-insured group health plan offering multistate plan wraparound coverage would have to report to the federal Office of Personnel Management (OPM) in a form and manner specified in OPM guidance.

Comments, identified by the heading “Excepted Benefits,” may be submitted to the DOL via the Federal eRulemaking Portal through Jan. 22, 2015.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

Related External Article:

Proposed Regs Would Expand Definition of Excepted Benefits to Cover Certain Types of Limited Wraparound Coverage, Littler, December 2014

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