Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Under FAQ Guidance, Non-EHB Supplemental Coverage May Qualify as Excepted Benefits

The DOL, IRS, and HHS have jointly issued a single FAQ clarifying the circumstances in which certain supplemental group (or individual) health insurance coverage that does not include coverage of any essential health benefits (EHB) may qualify as excepted benefits. As background, excepted benefits are exempt from certain federal mandates applicable to group health plans under HIPAA’s portability rules (e.g., special enrollment), health care reform (e.g., age 26 mandate, enhanced claims and appeals rules, and annual dollar-limit prohibition), and other federal laws such as the Mental Health Parity and Addiction Equity Act. The FAQ relies on the existing exception for supplemental benefits, which applies to coverage under a separate insurance policy that supplements Medicare or TRICARE coverage, or provides “similar” supplemental coverage designed to fill gaps in primary coverage, such as co-insurance or deductibles. Agency guidance issued in 2007 and 2008 (in the form of enforcement safe harbors; see our article) requires that, in addition to filling coverage gaps, “similar” supplemental coverage must (1) be issued by an entity independent from the entity that provides the primary coverage; (2) not cost more than 15% of the cost of the primary coverage; and (3) for group coverage, not differentiate among individuals in eligibility, benefits, or premiums based on any individual’s health factor. [EBIA Comment: To be exempt, the similar supplemental coverage must be provided under a separate insurance policy—thus, any type of supplemental coverage that is self-insured would not qualify for this exception.]

The FAQ addresses whether coverage that is designed to fill gaps in the categories of benefits covered by the primary plan—not just fill gaps in cost-sharing—can also qualify as similar supplemental coverage. The FAQ explains that the agencies intend to propose regulations clarifying that coverage of additional categories of benefits will be considered “designed to fill in the gaps” of the primary coverage only if the additional categories are limited to benefits that are not EHB in the state where the supplemental coverage is marketed. (For background on state-by-state EHB definitions, see our article.) Until the anticipated regulations have been finalized, the agencies will not pursue enforcement with respect to the excepted-benefit status of coverage that (1) complies with the existing regulations and safe harbor guidance defining similar supplemental coverage; (2) provides coverage of additional categories of benefits that are not EHB in the applicable state; and (3) satisfies applicable state filing and approval requirements. The FAQ states that it does not affect whether coverage may qualify as a different type of excepted benefit (e.g., limited-scope dental and vision benefits; see our article).

EBIA Comment: The agencies noted that some insurers have been marketing single-benefit supplemental coverage as an excepted benefit. Thus, the FAQ provides needed clarification of how these products will be treated by the regulators—but it also means that plan sponsors, insurers, and their advisors will need to be familiar with the various state EHB requirements because coverage will not qualify as an excepted benefit under this guidance if any benefit in the coverage is an EHB in the state where the coverage is marketed. For example, states may differ as to whether alternative treatments (such as chiropractic care or acupuncture) are included in EHB. (CMS maintains a webpage on EHB-benchmark plans for each of the 50 states, the District of Columbia, and U.S. territories.) For more information, see EBIA’s Health Care Reform manual at Sections V.F.5 (“Certain Supplemental Benefits”) andXXI.C.2.a (“What Are Essential Health Benefits?”). See also EBIA’s HIPAA Portability, Privacy & Security manual at Section VI.F.5 (“Certain Supplemental Benefits”) and EBIA’s Group Health Plan Mandates manual at Section IV.D.5 (“Certain Supplemental Benefits”).

Contributing Editors: EBIA Staff.

Tagged with →