HIPAA Excepted Benefits Broadened Under Proposed Rules

Author: Marta Moakley, XpertHR Legal Editor

December 24, 2013

The federal Departments of Labor, Treasury and Health and Human Services have jointly published proposed regulations regarding amendments to HIPAA excepted benefits. Employers are invited to comment on the proposed rules and on the government's approach, which involves allowing limited wraparound coverage and employee assistance programs (EAPs) to be considered excepted benefits under certain conditions, and which would eliminate the requirement that participants pay an additional premium or contribution for limited excepted benefits in order to "level the playing field between insured and self-insured coverage."

Excepted Benefits

Existing Health Insurance Portability and Accountability Act (HIPAA) regulations categorize four types of excepted benefits:

  1. Benefits that, as a general rule, are not health coverage (e.g., workers' compensation and automobile insurance);
  2. Limited excepted benefits, including limited scope vision or dental benefits. These limited benefits must be: (i) provided under a separate policy, certificate or contract of insurance and (ii) not be an integral part of a group health plan (whether insured or self-insured);
  3. Noncoordinated excepted benefits, including (i) coverage for only a specified illness and (ii) hospital indemnity or other fixed indemnity insurance, subject to certain limitations;
  4. Supplemental excepted benefits, including benefits that are supplemental to Medicare or to a group health plan and are provided under a separate policy or contract of insurance.

However, when applying Affordable Care Act (ACA) provisions to existing HIPAA regulations, employers had raised concerns regarding difficulties in implementing certain requirements (e.g., the ACA 90-day waiting period). Likewise, consumer groups predicted undesirable consequences for employees regarding the ACA's affordability calculations (e.g., a plan that is otherwise not affordable under the law could be affordable with respect to limited-scope vision benefits and consequently disqualify an employee from tax credit eligibility).

Limited Wraparound Coverage

The proposed rules would treat limited wraparound coverage as excepted benefits so that individuals could still receive the additional benefits if the group health plan is deemed unaffordable under the law and the employee participates in an exchange. However, the wraparound coverage would not be considered as excepted benefits if:

  • The coverage replaces, instead of adds to, group coverage for employers who drop coverage or fail to offer minimum value coverage; and
  • The coverage results in lower-income workers receiving fewer primary benefits than higher-income workers.

In order for limited wraparound coverage to be an excepted benefit:

  • The individual health insurance coverage must be non-grandfathered and cannot consist solely of excepted benefits;
  • The limited wraparound coverage must provide benefits in addition to the individual health insurance coverage;
  • The limited wraparound coverage must not otherwise be an integral part of a group health plan;
  • The wraparound coverage must actually be "limited," i.e., comprising no more than 15 percent of the cost of primary coverage; and
  • The limited wraparound coverage must not discriminate in its terms against individuals with different health factors or different incomes. Likewise, the coverage must not impose any pre-existing condition exclusion.

Employee Assistance Programs

The proposed regulations also clarify the circumstances under which EAPs would be considered excepted benefits and expand upon previous guidance. Specifically, an EAP would qualify as an excepted benefit if all of the following four criteria are met:

  1. The EAP does not provide "significant" medical benefits ("significant" has not been defined);
  2. The EAP's benefits cannot be coordinated with benefits under another plan (e.g., the EAP cannot be a "gatekeeper" to the group health plan or be financed by the group health plan);
  3. No premium or contribution is required for participation in the EAP; and
  4. No cost sharing exists.

Comment Procedure

Interested parties may submit comments on the proposed rules, identified by "Excepted Benefits," by: (i) visiting the Federal eRulemaking Portal; or (ii) mail or hand delivery to Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention: Excepted Benefits.

Effective Date

The proposed regulations would be effective for plan years beginning in 2015. During the rulemaking process, dental, vision and EAP benefits meeting the conditions of the proposed regulations will be considered excepted benefits.