The U.S. Departments of Labor (DOL), Health and Human Services (HHS), and Treasury published final rules on March 18, 2015 to amend the definition of excepted benefits to include certain limited coverage that wraps around individual health insurance. The significance of this is that plans providing excepted benefits do not need to comply with many provisions of ERISA and the Tax Code (such as HIPAA and the Affordable Care Act Coverage Mandates).
To qualify as excepted benefits under the new rules, “wrap around” coverage would have to be specifically designed to provide meaningful benefits such as coverage for expanded in-network medical clinics or providers, reimbursement for the full cost of primary care, or coverage of the cost of prescription drugs not on the formulary of the primary plan.
In addition, under the final rules group health plan sponsors may, in limited circumstances, offer wraparound coverage to employees who are purchasing individual health insurance in the private market, including in the Health Insurance Marketplace. The final rule sets forth two pilot programs for limited wraparound coverage. One pilot allows wraparound benefits only for multi-state plans in the Health Insurance Marketplace. The other allows wraparound benefits for part-time workers who enroll in an individual health insurance policy or in Basic Health Plan coverage for low-income individuals established under the Affordable Care Act. These workers could, under existing excepted benefit rules, qualify for a flexible spending arrangement alternative to this wraparound coverage.
The Final Rule
Additional Background Information:
There are four categories of statutorily excepted benefits.
The first category includes benefits that are generally not health coverage (such as automobile insurance, liability insurance, workers compensation, and accidental death and dismemberment coverage). The benefits in this category are excepted in all circumstances. In contrast, the benefits in the other categories are types of health coverage but are excepted only if certain conditions are met.
The second category of excepted benefits is limited excepted benefits, which may include limited scope vision or dental benefits, and benefits for long-term care, nursing home care, home health care, or community based care.
The third category of excepted benefits, referred to as “noncoordinated excepted benefits,” includes both coverage for only a specified disease or illness (such as cancer-only policies), and hospital indemnity or other fixed indemnity insurance. In the group market, there benefits are excepted only if all of the following conditions are met: (1) the benefits are provided under a separate policy, certificate, or contract of insurance; (2) there is no coordination between the provision of such benefits and any exclusion of benefits under any group health plan maintained by the same plan sponsor; and (3) the benefits are paid with respect to any event without regard to whether benefits are provided under any group health plan maintained by the same plan sponsor.
The fourth category of excepted benefits is supplemental excepted benefits. Such benefits must be: (1) coverage supplemental to Medicare, coverage supplemental to the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA) or to Tricare, or similar coverage that is supplemental to coverage provided under a group health plan; and (2) provided under a separate policy, certificate, or contract of insurance.
