This is the 45th in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). This article discusses newly-issued regulations (the 2014 Regulations) as to the requirements for dental, vision, long-term care and employee assistance plans (EAPs) to be treated as “excepted benefits,” exempt from the healthcare reform requirements of the Act. The 2014 Regulations make various changes to proposed regulations that were issued in 2013 (the Proposed Regulations).
Certain health-related benefits are generally exempt from both the requirements imposed by the Health Insurance Portability and Accountability Act (HIPAA), enacted in 1996, and those imposed by the Act. These so-called “excepted benefits” need not comply with provisions in the Act, such as limits on pre-existing condition exclusions, the requirement that health coverage include preventive services without cost-sharing, prohibitions on health status based discrimination, restrictions on annual and lifetime limits, guarantees on renewability of coverage and mental health coverage parity. In addition, eligibility for excepted benefits does not preclude an individual from eligibility for a premium tax credit if the individual enrolls in a qualified health plan through one of the healthcare exchanges established under the Act.
Excepted benefits are defined in Section 733 of the Employee Retirement Income Security Act of 1974 (ERISA), as well as parallel provisions of the Internal Revenue Code of 1986 and the Public Health Service Act. Section 733, in coordination with ERISA Section 732, establishes various categories of excepted benefits, including the following:
- Benefits that generally are not health coverage, such as auto insurance, liability insurance, workers compensation, and accidental death and dismemberment insurance
- Limited benefits that are provided under a separate policy, certificate or contract of insurance or are otherwise not an integral part of a group health plan, such as limited-scope vision or dental benefits; benefits for long-term care, nursing home care, home health care or community-based care; and other similar or limited benefits specified in regulations
- “Non-coordinated excepted benefits,” including coverage for only a specified disease or illness (such as cancer-only policies) and hospital indemnity or other fixed indemnity insurance
The Internal Revenue Service, the Department of Labor and the Department of Health and Human Services (the Agencies) issued regulations in 2004 (the 2004 Regulations) providing that dental, vision or long-term care coverage could qualify as an excepted benefit under HIPAA if coverage: (1) was provided under a separate policy, certificate or contract of insurance, in the case of insured benefits; or (2) was offered through a group health plan, but was not an integral part of the group health plan. Coverage was considered “not an integral part” of the group health plan if: (1) employees could elect not to receive the coverage and (2) those electing coverage were required to pay an additional contribution.
2014 Regulations on Excepted Benefits in General
Many employers complained that the 2004 Regulations required them to charge a nominal fee solely to qualify for the excepted benefits status. The work required to collect the additional, nominal contribution often cost more than the contribution brought in as revenue. Employers also complained that these requirements created an unnecessary inconsistency between insured and self-insured plans.
In response to these complaints, the 2014 Regulations instead provide that benefits are not an integral part of a group health plan (whether the benefits are provided through the same plan, through a separate plan or as the only plan offered to participants) if:
- Participants may decline coverage, whether or not there is a participant contribution required for the coverage; or
- Claims for the benefits are administered under a contract separate from claims administration for any other benefits under the plan.
Additional Requirements for EAPS as Excepted Benefits under 2014 Regulations
EAPs are programs offered by employers to provide services to address circumstances that might otherwise adversely affect employees’ work and health, such as substance abuse treatment, mental health counseling, financial counseling and legal services. Although these services generally would be considered group health plan coverage (subject to HIPAA and the Act’s market reform requirements), the 2014 Regulations recognize an EAP as an excepted benefit so long as four requirements are met:
- The EAP must not provide significant benefits in the nature of medical care. The amount, scope and duration of covered services are taken into account when analyzing this requirement. The preamble to the 2014 Regulations states that a program offering disease management services (such as laboratory testing, counseling and prescription drugs) for a chronic condition does provide “significant benefits” and does not qualify as an excepted benefit. On the other hand, short-term outpatient counseling for substance abuse (without anything more) would not provide significant benefits and would constitute an excepted benefit.
- Benefits under the EAP cannot be coordinated with the benefits under another group health plan. To satisfy this requirement, participants must not be required to exhaust benefits under the EAP before becoming eligible for benefits under another group health plan, and participant eligibility under the EAP must not be dependent on participation in another group health plan.
- No employee premiums or contributions may be required as a condition of participation in the EAP.
- The EAP may not impose any cost-sharing requirements .
Limited Wraparound Coverage
The Proposed Regulations included provisions as to when limited “wraparound” benefits provided through individual health insurance coverage would be an excepted benefit. Such coverage would be offered by employers to employees who purchase coverage through an exchange with a premium tax credit, but such coverage may be less generous in terms of benefits or a different provider network than that of the employer’s group health plan. Wraparound coverage would allow an employer to provide such employees with overall coverage that is comparable to the group plan coverage, taking into account both the exchange coverage and the wraparound coverage.
The 2014 Regulations do not include any wraparound coverage provisions. The preamble indicates that future regulations will address the inclusion of wraparound coverage as an excepted benefit.
Applicability Date and Reliance
The 2014 Regulations will apply for plan years beginning on or after January 1, 2015. Until then, the Agencies will consider dental, vision and EAP benefits meeting the conditions of the Proposed Regulations or the 2014 Final Regulations to be excepted benefits.
The preamble does not mention long-term care benefits in this context, but elsewhere the preamble states that “[w]hile coverage for long-term care benefits is not the focus of this rule, such benefits are also subject to the ‘not an integral part of a group health plan’ standard in order to be classified as excepted benefits,” and, accordingly, “the revisions discussed in this section of the preamble also apply to coverage of long-term care benefits.” Thus, one may infer that until January 1, 2015, the Agencies also will consider long-term care benefits meeting the conditions of the Proposed Regulations or the 2014 Final Regulations to be excepted benefits.