March 16, 2015
Agencies Issue Final Regulations for Limited Wraparound Coverage as "Excepted Benefits"
On March 16, the U.S. departments of Treasury, Labor and Health and Human Services issued final regulations to amend regulations regarding “excepted benefits” coverage under ERISA, the Internal Revenue Code and the Public Health Service Act with respect to “limited wraparound coverage.”
Wraparound coverage supplements core coverage and might provide such things as extra benefits or broader networks. Excepted benefits are those benefits that are excluded from the portability provisions established under HIPAA as well as certain health plan requirements of the Patient Protection and Affordable Care Act (PPACA). Excepted benefits generally do not constitute “minimum essential coverage” under PPACA, and thus would not disqualify an individual for premium tax credits for the purchase of individual insurance through a health exchange.
Under a pilot program established by the final regulations, limited wraparound coverage may be offered as “excepted benefits” if the coverage is offered no earlier than January 1, 2016, and no later than December 31, 2018, and ends on the later of (1) the date that is three years after the date wraparound coverage is offered or (2) the date on which the last collective bargaining agreement relating to the plan terminates after the date wraparound coverage is offered.
As explained in the preamble to the final regulations, “The intent of limited wraparound coverage is to permit employers to provide certain employees, dependents, and retirees who are enrolled in some type of individual market coverage with overall coverage that is generally comparable to the coverage provided under the employers’ group health plan, without eroding employer-sponsored coverage.” On December 23, 2014, DOL (along with the departments of the Treasury and Health and Human Services) published proposed amendments to current regulations regarding excepted benefits coverage under ERISA, the Internal Revenue Code and the Public Health Service Act with respect to limited wraparound coverage (see the December 23, 2014, Benefits Byte). The proposed regulations set out requirements under which limited benefits provided through a group health plan that wrap either eligible individual insurance or coverage under a Multi-State plan (limited wraparound coverage) constitute “excepted benefits.”
The new final regulations set out five requirements for such wraparound coverage, addressing the scope of coverage, cost limits, nondiscrimination rules, plan eligibility requirements and reporting requirements. The preamble to the final regulations describes the type of benefits that could be offered as meaningful benefits in limited wraparound coverage (including, for example, reimbursement for the full cost of primary care, or the cost of prescription drugs no on the formulary of the primary plan) and reiterate that limited wraparound coverage that is an excepted benefit cannot be an account-based mechanism.
Several of the clarifications described above were recommended in a comment letter on the proposed regulations submitted by the Council in February 2014. The Council noted at that time that the proposed rule has the potential to provide employers with an important tool to help formulate benefits offerings for their employees that are cost-efficient and also comprehensive in nature, as well as helping employers manage their benefits to minimize the application of the 40 percent excise tax on high-cost employer-sponsored health coverage (Code Section 4980I). In the preamble to the final regulations, the departments stated that issues relating to Section 4980I will be addressed as part of the Treasury and IRS rulemaking implementing the excise tax.
For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.