Definition of ‘Excepted Benefits’ Would Expand under ACA Proposal

Two specific types of limited wraparound coverage could qualify as “limited excepted benefits,” under health care reform rules proposed Dec. 19 by the U.S. Departments of Labor, Health and Human Services and the Treasury.

“Excepted” status would be available on a temporary “pilot” basis to coverage that:

• wraps around a Multi-State Plan offered by the U.S. Office of Personnel Management; or
• wraps around individual health insurance for non-full-time employees who otherwise could qualify for a health flexible spending account.

Excepted benefits are exempt from HIPAA’s portability rules and related health care reform requirements, among other coverage mandates (see the Guide to HIPAA Compliance, ¶221). The set of limited excepted benefits already was expanded in final rules published Oct. 1.

To be excepted, limited wraparound coverage would have to:

• be specifically designed to wrap around eligible individual health insurance;
• cost no more than the maximum annual contribution for health FSAs ($2,500 in 2014);
• not impose a pre-existing condition exclusion, or discriminate by health status or income;
• satisfy reporting requirements to be detailed in later guidance; and
• satisfy additional requirements regarding non-full-time employees’ insurance or the Multi-State Plan, as applicable.

DOL, HHS and Treasury originally proposed excepting certain limited wraparound coverage in December 2013, so plan sponsors could offer wrap coverage to employees who have to get their primary coverage on an exchange because their employer’s coverage is “unaffordable,” as defined under the Patient Protection and Affordable Care Act.

The agencies proceeded to finalize the sections of these proposed rules that dealt with employee assistance programs and certain limited-scope dental and vision benefits, but decided to issue a second proposal on limited wraparound coverage because of the extensive comments they received the first time around.

“While some elements of this proposal are the same as those in the previous proposal, this new proposal contains changes in response to suggestions and adds new elements for reporting and data collection to gather information to inform future rulemaking,” according to the preamble. After considering comments on the new proposal, DOL, HHS and Treasury could decide to implement either the non-full-time employee or Multi-State Plan option, or both. They would apply only to coverage that is first offered by Dec. 31, 2017.

Comments on the proposed rules must be submitted by Jan. 22.

Non-full-time Employees

Limited coverage that wraps around individual insurance for non-full-time employees (either part-timers or retirees) must meet three standards regarding plan eligibility:

1. The employer must offer its full-time employees coverage that meets PPACA’s minimum value and affordability requirements, and is “substantially similar” to coverage that would have to be offered to avoid PPACA’s pay-or-play penalties.
2. Only part-time employees or retirees, or their dependents, may be eligible for the limited wraparound coverage.
3. Other group health plan coverage must be offered to the individuals eligible for the wraparound coverage.

Multi-State Plan Coverage

Coverage that wraps around a Multi-State Plan must satisfy four requirements:

1. It must be specifically designed and approved by OPM to provide benefits in conjunction with Multi-State Plan coverage.
2. In the plan year beginning in 2014, the employer must have offered coverage “substantially similar” to coverage necessary to avoid pay-or-play penalties.
3. In the plan year beginning in 2014, the employer must have offered coverage “to a substantial portion of full-time employees” that met minimum value and affordability.
4. For the pilot program’s duration, the employer’s annual aggregate contributions for both primary and limited wraparound coverage must be substantially the same as its aggregate contributions for coverage offered to full-time employees in 2014.