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Agencies Finalize Dental, Vision, and EAP Changes to Excepted Benefits Under HIPAA and Health Care Reform

Amendments to Excepted Benefits, 26 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 146, 79 Fed. Reg. 59130 (Oct. 1, 2014)

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Visit the Health Care Reform Community on Checkpoint to join the discussion on this development (for Checkpoint subscribers to EBIA’s Health Care Reform manual).

The IRS, DOL, and HHS have issued final regulations changing the conditions for self-insured dental, vision, or long-term care (LTC) coverage to be treated as excepted benefits, and setting forth the criteria under which employee assistance programs (EAPs) will constitute excepted benefits. As background, excepted benefits are exempt from certain group health plan mandates under HIPAA’s portability rules (e.g., special enrollments), health care reform (e.g., age 26 and preventive services mandates, enhanced claims and appeals rules, and annual dollar-limit prohibition), and other laws (e.g., federal mental health parity requirements). By itself, excepted-benefits coverage does not relieve employers of employer shared responsibility penalties under Code § 4980H , satisfy the individual coverage mandate, or disqualify individuals from receiving premium tax credits for Exchange coverage. The regulations amend the 2004 regulations on excepted benefits, finalizing proposed regulations on dental, vision, and LTC coverage and EAPs that were issued last year (see our article) with a few changes and clarifications. The final regulations do not address a proposal to treat limited wraparound coverage as an excepted benefit. According to the preamble, future regulations will address this topic, taking into account extensive comments on the proposal. Here are highlights of the regulations:

  • Dental/Vision/LTC Benefits. Under the 2004 regulations, self-insured dental, vision, or LTC coverage is an excepted benefit if employees can elect not to receive the coverage and those electing coverage must pay an additional contribution. The final regulations adopt the proposal to eliminate the additional contribution requirement. They also clarify that the dental, vision, or LTC benefits can be provided through the same plan as other group health benefits, a separate plan, or as the only plan offered to participants, so long as (1) participants may decline the coverage, or (2) claims for the benefits are administered under a contract separate from claims administration for any other benefits under the plan. [EBIA Comment: By confirming that excepted benefit status is available for these benefits if they are the “only plan” offered, the final regulations appear to resolve some uncertainty regarding situations where major medical coverage is not offered. The regulations do not change the rules for insured coverage of this type, which will continue to be an excepted benefit if it is offered under a separate policy of insurance, without regard to participant contributions. The exception for health FSAs is also unchanged, but health FSAs (and HRAs) that reimburse only dental or vision expenses and meet the requirements of the regulations may separately qualify as excepted benefits.]
  • EAPs. An EAP is an excepted benefit if four conditions are met: (1) the EAP does not provide significant benefits in the nature of medical care; (2) EAP benefits are not coordinated with benefits under another group health plan; (3) no employee contributions are required as a condition of participation in the EAP; and (4) there is no cost-sharing under the EAP. When determining whether significant benefits in the nature of medical care are provided under the first condition, the amount, scope, and duration of covered services are taken into account. To meet the second condition, participants must not be required to exhaust EAP benefits before being eligible for benefits under the other plan and EAP eligibility cannot depend on participation in another plan. (A requirement in the proposed regulations that EAP benefits not be financed by another group health plan was not included in the final regulations.) [EBIA Comment: The preamble provides examples of EAPs that do and do not provide “significant benefits in the nature of medical care,” and indicates that the agencies may provide additional clarifications in future guidance. However, some employers and advisors may wish that more guidance had been provided on this issue. The preamble also rejects suggestions to treat wellness programs as excepted benefits by including them in an EAP.]
  • Applicability Date. The regulations apply for plan years beginning on or after January 1, 2015. Until then, the agencies will treat dental, vision, LTC, and EAP benefits that meet the conditions of either the final or proposed regulations as excepted benefits.

EBIA Comment: Employers offering dental, vision, LTC, and EAP benefits (as well as service providers who work with these plans) will need to review the final regulations carefully. Failure to meet the excepted benefit requirements will trigger additional requirements under HIPAA, health care reform, and other laws, and could result in penalties for noncompliance. For more information, see EBIA’s Health Care Reform manual at Section V (“Which Plans and Insurers Must Comply With the PHSA Mandates?”) and EBIA’s HIPAA Portability, Privacy & Security manual at Section VI (“What Plans Are Subject to HIPAA’s Portability Requirements?”). See also EBIA’s Cafeteria Plans manual at Section XXII.K.6 (“Exception for Health FSA Providing Only Limited-Scope Dental/Vision Benefits”), EBIA’s Consumer-Driven Health Care manual at Section XXV.G (“HRAs and Health Care Reform”), EBIA’s Group Health Plan Mandates manual at Section IV (“What Employers and Plans Are Subject to Federal Group Health Plan Mandates?”), and EBIA’s Self-Insured Health Plans manual at Section XIII.C (“Federal Mandates and Excepted Benefits”).

Contributing Editors: EBIA Staff.

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