On March 16, 2015, the U.S. Departments of Labor, Health and Human Services, and Treasury finalized regulations that would treat certain limited health coverage that wraps around eligible individual health insurance or multi-state plan coverage offered by the U.S. Office of Personnel Management (OPM) as an “excepted benefit.” Excepted benefits are exempt from numerous requirements generally applicable to group health plans, including the requirements of HIPAA and the insurance market reforms of the Affordable Care Act (ACA). 

The agencies previously had issued proposed rules on December 23, 2014. For the most part, the final rules adopt the proposed rules without modifications. 

Under the final rules, limited wraparound coverage would be considered an excepted benefit if the following requirements are satisfied: 

  • The coverage is specifically designed to wrap around eligible individual health insurance (or a Basic Health Program) and provides meaningful benefits beyond coverage of cost-sharing.
  • The coverage costs no more than the greater of (1) the maximum annual contribution for health flexible spending accounts; or (2) 15% of the cost of coverage under the employer’s primary plan.
  • The coverage does not impose a pre-existing condition exclusion, discriminate based on health status, or discriminate in favor of highly compensated employees.
  • The sponsor of the coverage satisfies reporting requirements that will be set forth in later guidance; and
  • The coverage meets certain additional eligibility requirements, as summarized below. 

Limited coverage that wraps around eligible individual health insurance for non-full-time employees must meet three standards regarding plan eligibility: 

  • The employer must offer its full-time employees coverage that provides minimum value, is reasonably expected to be affordable, and is “substantially similar” to coverage that the employer would need to offer in order to avoid penalties under Section 4980H of the Internal Revenue Code (the “Code”).
  • Eligibility for the wraparound coverage must be limited to part-time employees or retirees, and their dependents.
  • Employees eligible for the wraparound coverage must also be offered other group health plan coverage in addition to the wraparound coverage. 

For limited coverage that wraps around a multi-state plan, four eligibility requirements must be satisfied: 

  • The coverage must be specifically reviewed and approved by OPM to provide benefits in conjunction with multi-state plan coverage.
  • In the plan year that begins in 2013 or 2014, the employer must have offered coverage that is “substantially similar” to coverage that the employer would need to offer in order to avoid penalties under Section 4980H of the Code.
  • In the plan year that begins in 2013 or 2014, the employer must have offered coverage meeting the ACA’s minimum value and affordability requirements “to a substantial portion of full-time employees.”
  • For the pilot program’s duration, described below, 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 2013 or 2014. 

The final rules modify the pilot program period during which excepted benefit status for wraparound coverage is available. Under the pilot program set forth in the proposed rules, wraparound coverage could be offered as an excepted benefit if it is first offered no later than December 31, 2017. Under the final rules, wraparound coverage can be offered no earlier than January 1, 2016 and no later than December 31, 2018. The pilot program ends on the later of three years from the time the wraparound coverage was first offered, or the date on which the last collective bargaining agreement relating to the plan ends after the wraparound coverage is first offered, without regard to any later agreed-upon extension of the agreement.