Proposed regs would allow employers to provide excepted “wraparound” benefits
Proposed regs would allow employers to provide excepted “wraparound” benefits
Preamble to Prop Reg12/19/2014; Prop Reg § 54.9831-1(c)(3)(vii); Prop Labor Reg 2590.732(c)(3)(vii)
IRS, EBSA, and the Department of Health and Human Services (HHS) (the Departments) have issued new proposed regs that would create a pilot program for allowing plan sponsors in limited circumstances to offer, as excepted benefits, coverage that wraps around certain individual health insurance coverage in certain circumstances (“wraparound coverage”) that could qualify for exemption from the group health plan requirements imposed by both the Health Insurance Portability and Accountability Act (HIPAA, P.L. 104-191) and the Affordable Care Act (ACA, P.L. 111-148, P.L. 111-152).
Background.As enacted by HIPAA, ACA and other statutes, both the Code and ERISA subject group health plans to a variety of requirements.However, these requirements generally don’t apply to “excepted benefits,” including limited excepted benefits that (a) are provided under a separate policy, certificate, or contract of insurance; or (b) are otherwise not an integral part of the plan.(Code Sec. 9831(c)(1)) Specifically, the benefits offered separately from a group health plan that may be excepted are:
- 1. limited scope dental or vision benefits; (Code Sec. 9832(c)(2)(A))
- 2. benefits for long-term care, nursing home care, home health care, community-based care, or any combination of those benefits; (Code Sec. 9832(c)(2)(B))
- 3. other similar, limited benefits as specified in regs. (Code Sec. 9832(c)(2)(C))
In September 2014, the Departments finalized proposed regs, which had been issued in December 2013 (see Weekly Alert ¶ 25 12/26/2013), by adopting rules concerning certain limited excepted benefits, including dental and vision benefits, wraparound coverage, and employee assistance programs.However, the Departments passed on issuing final regs on wraparound coverage, which had been included in those proposals, and stated that they were continuing to take into account extensive comments on their proposals to include some wraparound benefits as excepted benefits, and they intended to publish regs addressing limited wraparound coverage in the future.(See Weekly Alert ¶ 14 10/9/2014 for more details on the final regs.)
Wraparound coverage.Under ACA, non-grandfathered health plans in the individual and small group markets must cover essential health benefits (EHBs), which include items and services in ten statutorily specified categories that are equal in scope to a typical employer plan.However, self-insured group health plans and health insurance coverage in the large group market often cover items and services in addition to these types of services—including for example, routine adult vision and dental care, long-term/custodial nursing home care, nonmedically necessary pediatric orthodontia, and coverage that extends beyond the benchmark plan’s coverage of wellness programs, manipulative treatment, infertility, home health care, private duty nursing, hospice, or certain non-traditional treatments.
According to the Departments, experts suggest that most workers who are offered minimum value employer-sponsored coverage will not meet the criteria for the premiums to be considered to be “unaffordable,” so that the premiums will not qualify for the premium tax credit for enrolling in coverage through an Exchange.Nevertheless, in some cases, employer plans may be unaffordable for some employees, so that these individuals might purchase coverage through an Exchange with a premium tax credit.Group health plan sponsors have asked whether “wraparound” coverage could be provided for employees for whom the employer premium is unaffordable and who obtain coverage through an Exchange, which would allow employers to provide these employees with overall coverage that is comparable to the group health plan coverage, taking into account both the wraparound coverage and the Exchange coverage.
In the original proposal, employer-provided wraparound coverage would constitute excepted benefits (limited wraparound coverage), and therefore would not disqualify an employee from eligibility for the premium tax credit and cost-sharing reductions, if five conditions were met.Under the new proposed regs (below), there would be a similar set of five conditions, but there would be two options concerning one of those conditions, as described below.In addition, the proposed regs would include a sunset date and, thus, would operate as a pilot program for the treatment of wraparound coverage.
New proposed regs—conditions for treating wraparound coverage as excepted benefit.The proposed regs set forth five requirements under which limited benefits provided through a group health plan that wrap around either eligible individual insurance or coverage under a multi-state plan (limited wraparound coverage) would constitute excepted benefits.Specifically:
- 1. The limited wraparound coverage would have to be specifically designed to wrap around eligible individual health insurance or multi-state plan coverage. In other words, the limited wraparound coverage would have to provide meaningful benefits beyond coverage of cost sharing under the eligible individual health insurance. The limited wraparound coverage would not be permitted to provide benefits solely under a coordination-of-benefits provision and could not be solely an account-based reimbursement arrangement. (Prop Reg § 54.9831-1(c)(3)(vii)(A))
- 2. The limited wraparound coverage would be limited in amount. Specifically, the annual cost of coverage per employee (and any covered dependents) under the limited wraparound coverage could not exceed the maximum annual contribution for health FSAs, which is $2,550 in 2015. (Prop Reg § 54.9831-1(c)(3)(vii)(B))
- 3. The limited wraparound coverage would have to meet three requirements relating to nondiscrimination: (a) the coverage could not impose any preexisting condition exclusion; (b) the coverage could not discriminate against individuals in eligibility, benefits, or premiums based on any health factor of an individual; and (c) neither the primary group health plan coverage nor the limited wraparound coverage could fail to comply with the ban on discrimination in favor of highly-compensated persons. (Prop Reg § 54.9831-1(c)(3)(vii)(C))
- 4. Individuals eligible for the limited wraparound coverage could not be enrolled in excepted benefit coverage that is a health FSA. In addition, plans would have to comply with one of two alternative sets of standards relating to eligibility and benefits (see below). (Prop Reg § 54.9831-1(c)(3)(vii)(D))
- 5. Under a reporting requirement, a self-insured group health plan, or a health insurance issuer offering or proposing to offer multi-state plan wraparound coverage, would have to report to the Office of Personnel Management (OPM), information OPM reasonably requires to determine whether the plan or issuer qualifies to offer such coverage or complies with the applicable requirements of the regs. In addition, the plan sponsor of any group health plan offering either limited wraparound coverage that wraps around eligible individual health insurance or multi-state plan coverage would have to report to HHS information that HHS reasonably requires to determine whether the exception for limited wraparound coverage under these proposed regs would allow plan sponsors to provide workers with comparable benefits whether enrolled in minimum essential coverage under a group health plan offered by the plan sponsor, or a qualified health plan with additional limited wraparound coverage offered by the plan sponsor, without causing an erosion of coverage. (Prop Reg § 54.9831-1(c)(3)(vii)(E))
Individual insurance or multi-state plan options.As noted above (see Item (4)), under the proposed regs, plans would have to comply with one of two alternative sets of standards relating to eligibility and benefits: (i) a set of plan eligibility requirements that would apply to wraparound benefits offered in conjunction with eligible individual health insurance for persons who are not full-time employees, or (ii) a separate set of standards that would apply to coverage that wraps around certain multi-state plan coverage.
Under the first option, limited coverage that wraps around eligible individual health insurance for an individual who is not a full-time employee would have to satisfy three standards relating to plan eligibility.First, for each year that wraparound coverage is offered, full-time employees would have to be offered coverage that is substantially similar to an offer of minimum essential coverage to at least 95% of its full-time employees, that provides minimum value, and which is reasonably expected to be affordable. Second, eligibility for the limited wraparound coverage would have to be limited to employees who are not full-time employees (and their dependents), or who are retirees (and their dependents).Third, other group health plan coverage, not limited to excepted benefits, would have to be offered to the individuals eligible for the wraparound coverage.(Prop Reg § 54.9831-1(c)(3)(vii)(D)(1))
Under the second option, for multi-state plan limited wraparound coverage, four requirements would have to be satisfied.First, the limited wraparound coverage would have to be specifically designed and approved by OPM to provide benefits in conjunction with coverage under a multi-state plan, as authorized by ACA §1334.Second, the employer would have to have offered coverage in the plan year that begins in 2014 that is substantially similar to an offer of minimum essential coverage to at least 95% of its full-time employees.Third, in the plan year that begins in 2014, the employer must have offered coverage to a substantial portion of full-time employees that provided minimum value and was affordable.Fourth, for the duration of the pilot program, the employer’s annual aggregate contributions for both primary and limited wraparound coverage would have to be substantially the same as the employer’s aggregate contributions for coverage offered to full-time employees in 2014.(Prop Reg § 54.9831-1(c)(3)(vii)(D)(2))
Pilot project.Under the proposed regs, this type of wraparound coverage could be offered as excepted benefits to coverage that is first offered no later than Dec. 31, 2017, and that ends on the later of: (1) the date that is three years after the date wraparound coverage is first offered; or (2) the date on which the last collective bargaining agreement relating to the plan terminates after the date wraparound coverage is first offered (determined without regard to any extension agreed to after the date the wraparound coverage is first offered).(Prop Reg § 54.9831-1(c)(3)(vii)(F))
References: For group-health plan portability, access, renewability, and parity rules, see FTC 2d/FIN ¶ H-1325 ; United States Tax Reporter ¶ 49,80D4 ; TG ¶ 7617 .