By Diane V. Dygert and Benjamin J. Conley
Seyfarth Shaw LLP, Chicago, IL
As we've previously reported, the Affordable Care Act insurance market reforms (including, but not limited to, the adult child coverage mandate, the preventive service mandate, and the prohibitions on annual and lifetime dollar limits) do not apply to any coverage offerings that would constitute "excepted benefits." Moreover, "excepted benefits" do not constitute minimum essential coverage under the individual mandate; meaning an employee who enrolls in such coverage will not be rendered ineligible for a premium subsidy on the Health Insurance Marketplaces. The IRS, DOL and HHS (collectively, the "agencies") have gradually, but cautiously, expanded the list of "excepted benefits" in an effort to preserve the reach of the insurance market reforms without inadvertently rendering enrolled individuals ineligible for premium subsidies. Recent guidance provides additional clarification on two forms of "excepted benefits" — supplemental insurance coverage and limited wraparound coverage.
Supplemental Insurance Coverage
HIPAA created a category of excepted benefits that would include supplemental insurance coverage intended to complement and enhance underlying group health coverage. To qualify, the coverage must meet the following requirements:
The agencies issued FAQs in February intended to clarify the scope of this category of excepted benefits. Specifically, the agencies are concerned about products that offer additional benefits rather than just provide cost-sharing for benefits covered under the primary insurance policy/plan. The agencies intend to issue regulations to clarify that this excepted benefit category only includes policies covering additional benefits (i.e., those not covered under the primary insurance plan/policy) if the additional benefits are not essential health benefits (EHBs) in the state where the policy is marketed. If any of the additional covered benefits are EHBs, then the supplemental insurance policy would instead be considered a group health plan rendering it subject to the ACA's insurance market reforms.
Plan sponsors should proceed with caution in light of this new guidance, especially with respect to supplemental executive insurance policies, many of which are marketed as meeting the definition of excepted benefits but cover EHBs not covered under the core medical insurance offering.
Limited Wraparound Coverage
On March 18th, the agencies issued final rules regarding a new form of supplemental coverage that would not impact the participating employee's eligibility for a premium tax credit, known as "limited wraparound coverage." Wraparound coverage could be offered by an employer to its part-time employees, retirees, and certain full-time employees (within the limits outlined below). The agencies view wraparound coverage as additional coverage an employer would offer to members of its workforce who are not eligible for the employer's affordable, minimum value coverage (e.g., non-full time employees). This coverage would "wrap" around a primary/core coverage offering, which could be an individual insurance policy, including but not limited to a Marketplace offering and/or a multistate plan option. Of course, premium tax credits are only available to individuals enrolling in Marketplace coverage, multistate coverage, or in a "basic health plan," (a new concept within the ACA that is, to a certain extent, a hybrid between Medicaid and an individual insurance policy).
The wraparound coverage must also meet the following requirements, otherwise the coverage could potentially render the participating employee ineligible for premium tax credits:
1. Meaningful additional benefits.
The wraparound coverage must include meaningful benefits beyond cost-sharing. For example, the coverage could offer an expanded provider network or benefits not covered under the primary plan, prescription drugs not on the formulary of the primary plan, ten physician visits per year, services considered to be out-of-network under the primary plan, access to onsite clinics or specific health facilities at no cost, or benefits targeted to a specific population (such as coverage for certain orthopedic injuries). The wraparound coverage cannot be limited to reimbursement for cost-sharing incurred under the individual insurance policy.
2. Limited cost.
The value of the coverage (determined on an annual, aggregate, actuarial basis in advance of the plan year) cannot exceed the greater of (a) the inflation-adjusted limits for employee contributions to a health flexible spending account ($2,550 for 2015), or (b) 15% of the cost of the primary coverage (determined in a manner similar to COBRA). This limit applies regardless of whether the coverage is offered at a single or family level.
The coverage cannot discriminate in favor of highly compensated employees or against employees based on health status.
Wraparound coverage must comply with the following eligibility standards:
Employers offering either type of wraparound coverage must report certain elements relating to the coverage to HHS. HHS will use the information to determine whether the availability of the wraparound coverage option encourages abusive practices.
Limited wraparound coverage will be available for a limited time under a Pilot Program. To take advantage of the excepted benefit program, limited wraparound coverage must be first offered no earlier than January 1, 2016, and no later than December 31, 2018. The pilot program will end on the later of, three years after the coverage is first offered, or the date on which the last collective bargaining agreement relating to the coverage terminates.
For more information, in the Tax Management Portfolios, see Cowart, 389 T.M., Medical Plans — COBRA, HIPAA, HRAs, HSAs and Disability, and in Tax Practice Series, see ¶5920, Health & Disability Plans.
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