Final Rule Issued on Excepted Benefits Wraparound Coverage

Pilot program available from January 2016 through December 2018

By Stephen Miller, CEBS Mar 18, 2015
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The U.S. Departments of Labor, Health and Human Services, and the Treasury have published a final rule to amend the definition of benefits excepted from certain regulations under the Affordable Care Act (ACA), clarifying how these excepted benefits “wrap around” primary health coverage provided by employers. The final rule was published in the Federal Register on March 18, 2015.

“The wraparound coverage rule creates a new category of excepted benefits,” explained Timothy Jost, J.D., a professor at the Washington and Lee University School of Law, in a March 17 post on the Health Affairs Blog. He explained:

Excepted benefits plans provide benefits that resemble in some way the health benefits that have been regulated by HIPAA [Health Insurance Portability and Accountability Act] and are now regulated by the ACA, but are more limited or are more tangential to medical care. 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). Additional specific conditions must be met for some of these benefits to qualify as excepted benefits.

Excepted benefits are generally not subject to ACA requirements such as the ban on dollar coverage limits or pre-existing conditions clauses, Jost noted. “But excepted benefit coverage explicitly does not qualify as minimum essential coverage. An individual who has only excepted benefit coverage and does not qualify for a shared responsibility requirement exception must still pay the individual mandate penalty. Large employers that offer only excepted benefits may have to pay the employer responsibility penalty, but individuals offered only excepted benefits by their employers are not disqualified from receiving premium tax credits to purchase individual coverage through the [ACA’s public exchange] marketplaces.”

While the list of excepted benefits has been fairly stable since the HIPAA rules were published in 2004, “the agencies are authorized to recognize new types of excepted benefits or change existing excepted benefits,” Jost said. In December of 2013, the agencies published a proposed rule to change the requirements for vision benefits linked with self-insured plans and to recognize employee assistance programs and wraparound benefits as excepted benefits under certain circumstances. A final rule on vision coverage and employee assistance programs was 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,” Jost remarked.

Pilot Program

The final rule permits 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 ACA’s federal and state public exchanges (referred to as the Health Insurance Marketplace).

One pilot option allows wraparound benefits only for multistate plans in the Marketplace; the other option 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 ACA.

Under the pilot program, coverage only qualifies if it is offered no earlier than Jan. 1, 2016, and no later than Dec. 31, 2018. The pilot program was delayed a year from the dates found in the proposed rule because implementation was not practical for 2015.

The departments “do not expect many plans to offer limited wraparound coverage, and will monitor usage and impact during the pilot program through reporting,” the final rule states.

Wraparound Coverage Requirements

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

  1. Covers additional benefits. The limited wraparound coverage must provide meaningful benefits beyond coverage of cost-sharing under the employee’s individual health insurance. Coverage deemed legitimate by the agencies 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, 10 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, benefits targeted to a specific population (such as coverage for certain orthopedic injuries), home health coverage, and coverage of other benefits that are not covered as essential health benefits under the primary plan.
    The departments reiterated, however, that limited wraparound coverage that is an excepted benefit cannot be an account-based mechanism and instead must be a risk-sharing product that covers a defined package of services.
  2. Is limited in amount. Wraparound coverage cannot exceed the maximum permitted annual contribution for health flexible spending accounts ($2,550 for 2015) or 15 percent of the cost of the primary plan, considering both employer and employee contributions and determined in the same manner as the applicable premium is determined for COBRA continuation coverage.
  3. Is nondiscriminatory. The wraparound program cannot impose any pre-existing condition requirements or discriminate based on health status in eligibility, benefits or premiums. Neither the primary nor wraparound coverage can discriminate in favor of highly compensated employees.
  4. Adheres to plan eligibility requirements. Employees enrolled in wraparound coverage may not also be enrolled in an excepted benefits 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. Is subject to reporting. Employers that offer wraparound coverage will have to report to the Department of Health and Human Services required information to ensure that the coverage complies with program requirements and that the program is not contributing to erosion of ACA-compliant coverage. In addition, a self-insured group health plan offering multistate plan wraparound coverage will have to report to the federal Office of Personnel Management in a form and manner specified in Office of Personnel Management guidance.

As described in the final rule, limited wraparound coverage for persons who are not full-time employees is intended for employers that are generally offering affordable, minimum value coverage to their full-time workers but want to offer an additional limited benefit to their part-time workers.

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

Related Analysis:

Federal Agencies Issue Final Regulations Expanding Definition of Excepted Benefits to Cover Certain Types of Limited Wraparound Coverage, Littler Mendelson P.C., March 2015

Related SHRM Articles:

Comments Sought on Proposed 'Excepted Benefits' [Wraparound] Rule, SHRM Online Benefits, December 2014

Agencies Issue Final Rule [on Vision and EAP] ‘Excepted Benefits,’ SHRM Online Legal Issues, October 2014

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