Comments Due on Proposed Regulation on Excepted Benefits, i.e., Benefits Exempt from ACA Requirements
The Internal Revenue Service (IRS), Department of Labor (DOL), and Health and Human Services (HHS) published a proposed regulation on December 24, 2013, regarding excepted benefits. This alert briefly describes the scope of the proposed regulation and provides a link to the regulations for more details.
Action Needed: Plan sponsors need to decide whether they want to comment on the proposed rules. Comments are due on or before February 24, 2014.
Background: Excepted benefits are generally exempt from the Affordable Care Act (ACA). This means that it is acceptable to place limitations such as lifetime or annual maximums on these benefits and to not provide coverage to certain dependents for these benefits.
There are four categories of excepted benefits. The categories are:
- Benefits that are not considered health benefits (e.g., automobile insurance)
- Limited excepted benefits (e.g., some dental and vision coverage, long-term care)
- Noncoordinated excepted benefits (e.g., cancer coverage)
- Supplemental excepted benefits (e.g., Medicare Supplemental plans)
For category 2. Limited excepted benefits, the proposed regulation modified the dental and vision rules and added to two benefits to the list of limited excepted benefits: limited wraparound coverage and Employee Assistant Programs (EAPs).
Details of the three benefits discussed in the proposed regulation are summarized below.
Dental and Vision Benefits: Under the prior regulations, dental and visions benefits are considered limited excepted benefits if:
- They are provided under a separate policy, certificate, or contract of insurance, or
- They are otherwise not an integral part of a group health plan. In order to not be an integral part of a group health plan, the following two requirements must be satisfied:
- Participants have the right to elect not to receive coverage for the benefits; and
- Participants electing coverage must pay an additional premium/contributions if benefits are not provided under a separate policy, certificate, or contract of insurance.
The proposed change removes the requirement that participants pay an additional premium/contribution for dental or vision benefits. Participants still must have the right to elect not to receive the coverage.
If the dental or vision benefits meet the conditions of the proposed regulations, they will be considered excepted benefits beginning on January 1, 2014.
Limited Wraparound Coverage: The proposed regulations added a new type of excepted benefit: limited wraparound coverage. This limited wraparound coverage can be offered beginning on January 1, 2015. A plan sponsor will then be able to offer wraparound coverage to participants receiving their health care through an Exchange, i.e., Health Insurance Marketplace, subject to various requirements.
This complex new option requires the plan sponsor to offer a primary health plan that complies with the ACA in terms of minimum value and is affordable for a majority of its employees. For the employees that elect to go to the Exchanges, the plan sponsor can offer the limited wraparound coverage if all of the following conditions are met:
- The plan wraps around an individual non-grandfathered health plan that does not consist solely of excepted benefits.
- The plan provides benefits over and above the individual health coverage as follows:
- It must provide some coverage of benefits for non-essential health benefits such as covering some out-of-network health care providers
- The main purpose of the coverage cannot be to fill in the participant's cost-sharing
- It must provide benefits more than just under a coordination-of-benefits provision.
- Only individuals eligible for the primary plan may be eligible for the wraparound coverage.
- The total cost must be 15 percent or less than the cost of coverage under the primary plan.
- The wraparound plan must not discriminate based on morbidity or income.
The employees for which the plan sponsor's coverage is unaffordable, i.e., the employee contribution is greater than 9.5% of employee's household income, would be able to get the premium tax credits, i.e., subsidy. However, a large employer may have to pay the 4980H(b) penalty of $3,000 per year for each employee for whom coverage is unaffordable under the ACA, who enrolls in the Health Care Exchanges, and who receives a premium tax credit. The regulation explaining the $3,000 employer penalty was published on February 12, 2014.
Cheiron note: A lot of legal interpretation is needed on this new option. For example, the preamble to the proposed regulations implies that this limited wraparound coverage can only be offered to employees for whom primary health coverage is not affordable. Additionally, definitions for items such as "employee" are not clear, e.g., whether part time employees are included or excluded.
Employee Assistance Plans (EAPs): For 2014, EAPs would be considered excepted benefits if the program does not provide significant benefits in the nature of medical care or treatment.
However, beginning on January 1, 2015, the following additional requirements must be met for an EAP to continue to be an excepted benefit:
- The benefits cannot be coordinated with the benefits under another group health plan, as follows:
- EAP benefits must not require a participant to exhaust benefits prior to the participant having access to other group health plans such as behavioral health,
- Participant eligibility for benefits must not be dependent on participation in another group health plan, and
- Benefits under the EAP must not be financed by another group health plan.
- No employee premiums/contributions may be required.
- There is no cost sharing on the EAP benefit.
The proposed regulation is available at http://www.gpo.gov/fdsys/pkg/FR-2013-12-24/pdf/2013-30553.pdf.
Comments can be submitted on-line at http://www.regulations.gov or mailed/delivered to Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC 20210 Attention: Excepted Benefits.
Cheiron health consultants can assist plan sponsors with the review and consideration of the impact of the proposed regulations.
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal services or tax advice.