“Excepted benefits” are specified limited scope health benefits that are exempt or “excepted” from the insurance market reform provisions of the Affordable Care Act (ACA) and the health insurance requirements of the Health Insurance Portability and Accountability Act of 1986 (HIPAA). On December 20, 2013, the Departments of HHS, Labor and Treasury issued proposed regulations that expand and clarify the categories of benefits that qualify as “excepted benefits.” The three primary expansions are:
- Self-insured dental and vision benefits would be considered excepted benefits even if participants are not required to pay a separate additional charge for them.
- A new category of “limited wraparound” group coverage of individual coverage will be considered excepted benefits If specific requirements are met.
- Certain Employee assistance programs (EAPs) will be considered excepted benefits.
The Importance of these Expansions in the Definition of Excepted Benefits
Under the ACA, if an individual (employee or dependent) is offered employer group coverage that provides at least minimum value but that costs more than 9.5% of household income for employee-only coverage, the individual may qualify for subsidies to buy insurance in the exchange if household income is below specified thresholds (i.e., up to 400% of the federal poverty level) and the individual is not eligible for Medicaid or other government health coverage. To qualify for subsidies, however, the individual must forego employer coverage, unless the employer coverage consists solely of excepted benefits. In such case, the individual can have employer coverage and also qualify for a subsidy.
Expanding the definition of excepted benefits means that more low-income individuals may qualify for subsidies in the exchange and can also receive excepted benefits offered by their employers.
It is important to keep in mind, however, that individuals who have only excepted benefits –and not also other coverage that provides at least minimum essential coverage—will still be subject to the individual mandate tax unless they meet specified exceptions.
Background on Excepted Benefits
“Excepted benefits” were created by HIPAA and are exempt from HIPAA’s health insurance requirements (such as pre-existing conditions limitations) and also from the ACA’s insurance market reforms. Additionally, they do not count as “minimum essential coverage” or as minimum value coverage.
There were four categories of excepted benefits under existing guidance (prior to the new regulations):
- Benefits whose primary purpose is not health insurance but may provide some health-related benefits. Examples include auto and liability insurance, workers compensation, accidental death and dismemberment insurance. These are always excepted benefits.
- Limited-scope benefits such as vision, dental or long-term care benefits. These are excepted benefits only if they are either provided under an insurance policy that is separate from the major medical policy, or if they are not an “integral part” of the group health plan.
- Non-coordinated excepted benefits, such as insurance policies that cover cancer or another specific disease or that are fixed indemnity policies (e.g., pay a set amount per day of hospitalization). These are excepted benefits only if they are not coordinated with the major medical plan (i.e., they pay the same amount whether or not the individual is covered under the major medical plan) and they are income replacement benefits
- Benefits that are supplemental to Medicare or similar government programs, and that are provided under a separate contract from the underlying medical program.
Following is additional detail on the three expansions to excepted benefits under the proposed rules.
Self-Insured Dental and Vision Benefits
The change under the proposed regulations is: Self-insured dental and vision benefits (that participants can elect to receive or not) will be considered excepted benefits even if participants are not required to pay a separate additional charge for them.
Under existing law (prior to these regulations) dental and vision benefits were excepted only if they were either:
- provided under an insurance policy that was separate from the major medical policy, or
- not an “integral part” of the group health plan. In order for self-insured dental or vision benefits to not be an integral part of the group plan (and therefore to be considered “excepted”), the plan had to allow participants to opt out of the coverage, and if they opted in they were required to pay an additional amount for coverage, even if it was only a nominal amount.
The reasons the regulators changed the rule to no longer require an additional charge was: 1) to put self-insured plans on equal footing with insured plans, 2) employers had expressed concern that it may cost them more than the amount collected to institute a nominal charge just to meet this requirement, and 3) consumer advocates were concerned that low-wage employees would be ineligible for a subsidy to buy health insurance in an exchange if an employer offered only self-insured dental and vision benefits that were not excepted but did meet the affordability test.
Limited Wraparound Group Coverage of Individual Coverage
The change under the proposed regulations is: A new category of excepted benefits is created, called “limited wraparound coverage” – which is defined as coverage that meets all of the following conditions:
- It must wrap around non-grandfathered individual coverage that is not solely excepted benefits.
- It must provide benefits beyond those that are provided by the individual coverage. Thus, it must provide benefits that are not essential health benefits (EHB) or must cover the cost of out-of-network EHB providers, or both. The primary purpose cannot be to reimburse participants for deductibles, co-payments and coinsurance under an individual policy.
- The wraparound coverage is not “an integral part” of the primary group health plan. The plan sponsor also must offer a primary group health plan that provides minimum value and is affordable to a majority of employees. Additionally, only employees who are eligible for the primary coverage can be offered the wraparound coverage.
- The cost of the wraparound coverage (including both employer and employee contributions) cannot be more than 15% of the cost of the primary health plan
- The wraparound coverage must be offered on a nondiscriminatory basis (not discriminate based on health status or income).
Certain employee assistance programs (EAPs)
The change under the proposed regulations is: The regulations clarify that an EAP will be considered an excepted benefit if:
- It does not “provide significant benefits in the nature of medical care”—which the regulators propose to define as an EAP that provides no more than 10 outpatient visits for mental health or substance use disorder counseling, one annual wellness checkup, immunizations and diabetes counseling, but no inpatient benefits.
- EAP benefits are not coordinated with another group health plan – which means that: 1) the group health plan cannot require that a participant first exhaust EAP benefits, and 2) the EAP cannot require that an individual be enrolled in the group health plan in order to participate in the EAP
- Employees are not required to pay a premium or contribution in order to have EAP coverage, and
- There is no employee cost-sharing (e.g., co-payments or coinsurance)
Before these proposed regulations, it was unclear whether certain EAPs were group health plans (and thus subject to the ACA market reforms such as the prohibition on annual dollar limits), or were excepted benefits (not subject to such requirements). Guidance issued in September 2013 provided that EAPs were group health plans if they provided “significant benefits in the nature of medical care or treatment,” but employers had requested additional guidance. The changes listed above address employer concerns.