On December 24, 2013, the Department of Labor, the Department of Treasury, and the Department of Health and Human Services (the “Departments”) issued a welcome set of proposed regulations regarding the treatment of certain “excepted benefits” under the Affordable Care Act (“ACA”). Excepted benefits are benefits that are exempt or excepted from the requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which include the health reform requirements added by the ACA. The proposed regulations:
- Eliminate the contribution requirement for self-funded limited scope vision and dental plans to qualify for the exception
- Establish a new category of “limited wraparound” excepted benefits (such coverage would wrap around individual non-grandfathered coverage, like coverage purchased through a State or Federal Exchange or Marketplace)
- Provide helpful criteria for a plan sponsor to determine whether its employee assistance program (“EAP”) qualifies as excepted benefit.
The proposed regulations which help alleviate concerns about the continued viability of self-funded dental and vision plans and EAPs, and may be relied upon until rulemaking is finalized, through at least 2014. The Departments have invited comments to the proposed regulations until February 24, 2014.
Dental and Vision Benefits from Self-Insured Plans
Under current regulations, for a limited scope dental or vision plan to be an “excepted benefit”, the plan had to meet either of the following requirements:
- The plan must be insured under a separate policy or contract.
- The plan may not be an “integral part of a group health plan” — this essentially meant that for the exception to apply to a self-funded plan, it had to allow employees:
- to opt-out of dental or vision coverage; or
- opt-in and pay a contribution (even a nominal amount) towards such coverage.
With the passage of the ACA and its coverage requirements, in particular its prohibition against lifetime and annual dollar limits on “essential health benefits” and restriction against preexisting condition exclusions, claiming the exception has become more important to plan sponsors.
Noting that sponsors of insured dental and vision plans are not required to charge employees any premium for the plan to be considered “excepted,” the proposed regulations eliminate the contribution requirement for self-funded limited scope dental or vision plans that provide dental or vision benefits only. This means that a self-funded dental or vision-only plan can be offered free of charge to employees and need only provide employees with the right to opt-out to enjoy “excepted” status.
New Excepted Benefit Category — Limited Wraparound Coverage
Addressing the concern that lower-paid employees who might otherwise qualify for a premium tax credit to purchase State or Federal Exchange/Marketplace coverage may not have access to employer-provided coverage that is affordable and/or comprehensive, the proposed regulations introduce “limited wraparound coverage” as a new category of excepted benefits that employers may provide. To be an excepted benefit, limited wraparound coverage must meet the following five conditions:
- It must “wrap around” individual health insurance coverage that is not grandfathered (for example, individual coverage purchased through a State or Federal Exchange/Marketplace) and may not consist solely of excepted benefits (for example, dental or vision coverage, cancer-only policy, etc.).
- It must cover benefits or providers that are not covered by the above referenced individual coverage (i.e., it may not cover any “essential health benefit”1). It must either provide benefits that are in addition to the “essential health benefits” that are provided under the individual plan, or reimburse the cost of services furnished by providers that are considered “out-of-network” by the individual coverage, or both.
- It may not provide benefits only under a coordination-of-benefits provision.
- While it may not be its primary purpose, the limited wraparound plan may reimburse applicable cost-sharing under the individual coverage (e.g., deductibles, co-payments, and other costs).
- The sponsor of the limited wraparound coverage must sponsor another group health plan (a “Primary Plan”) which is available only to those employees who are eligible for the wraparound coverage. The Primary Plan must:
- Provide “minimum value” as defined by the ACA (see Section 36B(c)(2)(C)(ii) of the Internal Revenue Code)
- Be affordable for a majority of eligible employees
- The total cost of the limited wraparound coverage must not exceed 15% of the cost of coverage under the Primary Plan, taking into account both employer and employee contributions (cost is determined in the same manner that COBRA premiums are calculated).
- The coverage must not discriminate among individuals based upon income or the health of the individual in any of the following ways:
- It may not differentiate among individuals in eligibility, benefits, or premiums based on any health factor of an individual or any dependent.
- It may not impose any preexisting condition exclusion.
- The Primary Plan coverage may not discriminate in favor of highly compensated individuals (for self-funded Primary Plans, see the non-discrimination provision Section 105(h) of the Internal Revenue Code and for insured Primary Plans, see the non-discrimination provisions in Public Health Service Act section 2716, ERISA Section 715, and Internal Revenue Code section 9815. Note that enforcement of the provision for insured Primary Plans has been delayed pending issuance of regulations; see IRS Notice 2011-1).
Employee Assistance Programs (“EAPs”)
Employers generally offer EAPs to employees free of charge to provide a broad range, but limited set of benefits that may include short-term substance use disorder or mental health counseling, financial counseling, legal services and referral services. In response to the lack of guidance regarding EAPs and their status under the ACA, the proposed regulations clarify the requirements for an EAP to meet to be considered an “excepted benefit”. The criteria will also help determine whether the EAP will disqualify an individual from the premium tax credit to purchase State or Federal Exchange/Marketplace coverage if it does not meet the exception.
Until rulemaking is finalized, through at least 2014, to qualify as excepted benefit, an EAP must meet the following five requirements:
- The EAP cannot provide significant benefits in the nature of medical care (until guidance is issued, the preamble to the proposed regulations state that plan sponsors may use a reasonable, good faith interpretation of whether an EAP provides “significant benefits in the nature of medical care or treatment”). In the preamble to the proposed regulations, the Departments state that the following examples of EAPs do not provide significant benefits in the nature of medical care and would, therefore, meet this criterion of the exception:
- An EAP with benefits that consist primarily of free or low-cost confidential short-term counseling (which could address substance abuse, alcoholism, mental health or emotional disorders, financial or legal difficulties, and dependent care needs) to identify an employee’s problem that may affect job performance and, when appropriate, referrals to outside sources to resolve the problem
- A wellness program that provides a wide-range of education and fitness services (sports and recreation activities, stress management, and health screenings) designed to improve the overall health of the employee and prevent illness, where any costs charged to the individual to participate are separate from the individual’s coverage under the health plan.
- The Departments have invited comments as to how to define “significant” benefits, including specific comments on whether an EAP that provides no more than ten out–patient visits for mental health or substance abuse disorder counseling, an annual wellness checkup, immunizations, diabetes counseling and no in-patient care should satisfy this criterion.
- EAP benefits cannot be coordinated with benefits under another group health plan. This means that:
- Participants in the other group health plan may not be required to exhaust benefits under the EAP before they can access benefits under the other group health plan (i.e., the EAP may not be a “gatekeeper” to participation in the other plan).
- Eligibility for benefits under the EAP may not be dependent on participation in another group health plan.
- EAP benefits may not be financed by another group health plan.
- The EAP may not charge any employee premiums or contributions to participate in the EAP.
- The EAP may not impose any cost-sharing.
With the exception of the first criterion, all of the criteria are intended to ensure that plan sponsors are able to continue to offer EAPs as supplemental benefits to other group health plan coverage and ensure that employees who only have access to an “excepted benefit” EAP can enroll in State or Federal Exchange or Marketplace coverage with a premium tax credit.
The Departments’ proposed regulations greatly clarify the requirements necessary for limited scope dental and vision plans and EAPs to be considered excepted under the ACA and HIPAA. As referenced above, until these proposed regulations become finalized, through at least 2014, the Departments will consider plans that meet the proposed rules’ criteria as “excepted”. The final regulations will not be effective until plan years beginning in 2015. If you have any questions regarding the foregoing, please contact the authors of this article.
1 The “essential health benefits” provided by Section 1302 of the ACA are as follows: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.