On March 18, 2015, the Department of Labor, the Department of the Treasury, and the Department of Health and Human Services (the “Departments”) jointly issued final rules (the “Final Rules”) amending proposed regulations previously issued under the Affordable Care Act (the “ACA”) regarding the inclusion of “limited wraparound coverage” as a new “excepted benefit” under a pilot program, which will require reporting to either the Office of Personnel Management or the Department of Health and Human Services. The Final Rules permit employers and plan sponsors to begin offering limited wraparound group health plan coverage to part-time employees and retirees for the period beginning no earlier than January 1, 2016 and no later than December 31, 2018, and ending on the later of the following:
- Three years after the date wraparound coverage is first offered; or
- If the benefit is collectively bargained, the date on which the last collective bargaining agreement relating to the coverage terminates (determined without regard to any extension agreed to after the date the wraparound coverage is first offered).
As such coverage is intended to “wrap around” individual Exchange/Marketplace coverage or Multi-State Plan coverage, the Final Rules permit an individual to qualify for the premium tax credit under Section 36B of the Internal Revenue Code (the “Code”) and also have combined coverage that is comparable to employer-provided group health plan coverage.
Limited Wraparound Coverage Requirements
To be an “excepted benefit”, the coverage must: (a) “wrap around” eligible individual insurance coverage that is not a “grandfathered health plan” or a transitional individual health insurance plan (as described in the March 5, 2014 Insurance Standards Bulletin Series — Extension of Transitional Policy through October 1, 2016), and does not consist solely of excepted benefits (e.g., a dental or vision-only coverage policy, or a cancer-only policy), or Multi-State Plan coverage, and (b) satisfy all of the following requirements:
1. Cover additional benefits. The plan must provide meaningful benefits that cover a defined package of services and demonstrate risk-sharing. This means that the plan cannot simply provide benefits under a coordination of benefits provision or an account-based arrangement that reimburses out-of-pocket costs, for example. Under the Final Rules, a wraparound plan may provide the following types of coverage:
- Expanded in-network medical clinics or providers;
- Benefits that are not essential health benefits;
- The cost of prescription drugs not covered by the primary plan;
- Home health coverage; and
- Access to on-site clinics at no cost.
2. Be limited in amount. The annual cost of coverage per employee and covered dependents may not exceed the greater of the maximum annual contribution for health flexible spending accounts (“FSAs”) ($2,550 for 2015), or 15% of the primary plan’s cost of coverage.
3. Not be discriminatory. The coverage:
- Cannot impose any preexisting condition exclusion;
- Cannot discriminate against any individual with respect to eligibility, benefits, or premiums on the basis of any health factor of the individual (or any dependent of the individual); and
- Cannot discriminate in favor of highly compensated employees (note: all other group health plans offered by the plan sponsor must also satisfy the non-discrimination requirement of Section 2716 of the Public Health Service Act or Section 105(h) of the Code, as applicable).
4. Eligibility requirements. Eligibility must be limited to individuals who are not enrolled in health FSA coverage and are either of the following:
- A part-time employee (and his or her dependents) or a retiree (and his or her dependents) who is eligible for coverage under another group health offered by the employer. This means that an employer may not discontinue offering group coverage to encourage employees to obtain subsidized Exchange/Marketplace coverage. Under the Final Rules, “part-time” employees are employees who are reasonably expected to work less than 30 hours per week at the time of enrollment. To make a determination regarding an employee’s part-time status, the Final Rules state that an employer may rely either on the Code Section 4980H definition or any other reasonable interpretation. Furthermore, to the extent that the employer has full-time employees, it must offer them coverage that is substantially similar to coverage that would allow the employer to avoid an employer-shared responsibility assessment under Code Section 4980H(a) (if such provisions were applicable), provides minimum value, and is reasonably expected to be affordable under the safe harbor found in Code Section 4890H; or
- An individual covered under a Multi-State Plan. Wraparound coverage eligibility may be limited to individuals who are covered through a Multi-State Plan authorized under Section 1334 of the ACA. This option requires:
- Review and approval of the coverage by the United States Office of Personnel Management;
- Beginning in either the 2013 or 2014 plan year, the employer must have offered its full-time employees coverage that is similar to coverage the employer would have been required to offer to avoid a Section 4980H(a) assessment;
- The employer must have offered a substantial portion of its full-time employees coverage in 2013 or 2014 that provided minimum value and was considered affordable; and
- For the duration of the pilot program, the employer’s annual aggregate contributions for both primary and limited wraparound coverage must be substantially the same as the employer’s aggregate contributions for coverage offered to full-time employees in 2013 or 2014.
5. Report coverage. Employers would report the wraparound coverage in the form and manner to be prescribed in subsequent guidance to either the Office of Personnel Management (if wraparound coverage is offeredo in connection with Multi-State Plan coverage) or the Department of Health and Human Services.
The Final Rules provide welcome guidance to plan sponsors that wish to provide certain groups of employees, particularly part-time employees, with comparable benefits to those offered under the employer’s group health plan, but without disqualifying individuals from claiming a premium tax credit on the Exchange. If you have any questions regarding this information, please contact the author of this article.