HIPAA Excepted Benefits Final Rules Issued

Author: Marta Moakley, XpertHR Legal Editor

March 23, 2015

The federal Departments of Labor, Health and Human Services and Treasury finalized regulations amending the current definition of excepted benefits to include certain types of limited wraparound coverage. In addition, the final rules also establish two pilot programs for limited wraparound coverage: one for benefits for part-time workers who enroll in an individual health insurance policy or in Basic Health Plan coverage for low-income individuals under the Affordable Care Act; and one for multi-state plans in the Health Insurance Marketplace.

The Obama administration stated in a press release that the final rules "give businesses - including small businesses - new flexibility to meet the unique needs of their employees."

The proposed regulations were released on December 24, 2013 with an accompanying request for comments. The proposed regulations addressed difficulties in implementing certain Affordable Care Act (ACA) requirements under existing Health Insurance Portability and Accountability Act (HIPAA) regulations regarding excepted benefits. The Departments published an additional proposed rule on December 23, 2014, focusing on limited wraparound coverage. The final rules incorporate feedback received from businesses and other stakeholders regarding challenges in implementation that may result in unintended consequences for both employees and employers.

HIPAA regulations list four types of excepted benefits:

  1. Benefits that, as a general rule, are not considered health coverage (such as workers' compensation or accidental death and dismemberment coverage);
  2. Limited excepted benefits, such as limited scope vision or dental benefits, that are:
    • Provided under a separate policy, certificate or contract of insurance; or
    • Otherwise not an integral part of a group health plan, whether insured or self-insured;
  3. Noncoordinated excepted benefits, which include both coverage for only a specified disease or illness and hospital indemnity or other fixed indemnity insurance, if:
    • Provided under a separate policy, certificate or contract of insurance;
    • There is no coordination between the provision of benefits and any exclusion of benefits under any group health plan maintained by the same plan sponsor; and
    • Are paid with respect to any event without regard to whether benefits are provided under any group health plan maintained by the same plan sponsor; and
  4. Supplemental excepted benefits (such as benefits that are supplemental to Medicare and available under a separate policy, certificate or contract of insurance).

Limited wraparound coverage would qualify as an excepted benefit under the final rules if the coverage:

  • Provides meaningful benefits beyond coverage or cost-sharing under the eligible individual health insurance or multi-state plan coverage;
  • Is limited in amount, so that the coverage would be limited to the greater of:
    • The maximum permitted annual salary reduction toward a health flexible spending account; or
    • 15% of the cost of coverage under the primary plan;
  • Does not discriminate. Specifically:
    • Does not impose any preexisting condition exclusion;
    • Does not discriminate against individuals as to eligibility, benefits or premiums based on any health facts; and
    • Does not discriminate in favor of highly compensated individuals;
  • Meets additional plan eligibility requirements; and
  • Meets reporting requirements.

Examples of meaningful benefits in limited wraparound coverage include:

  • Reimbursement for the full cost of primary care;
  • 10 physician visits per year;
  • Services considered to be provided out-of-network by the primary plan;
  • Access to onsite clinics at no cost; and
  • Home health coverage.

Additional plan eligibility requirements apply to employees who do not work full-time. In order to qualify as limited wraparound coverage in these instances:

  • An employer must offer coverage to full-time employees that satisfies the pay-or-play, or employer mandate, provisions of the ACA, namely: offers minimum value; is reasonably expected to be affordable; and is substantially similar to an offer of minimum essential coverage;
  • Eligibility for coverage must be limited, such as to part-time employees or retirees; and
  • There must be an offer of other group health plan coverage in addition to the wraparound coverage.

Plan eligibility requirements for limited coverage that wraps around multi-state plan coverage include:

  • Coverage must meet Office of Personnel Management (OPM) review and approval;
  • In the plan year that begins in 2013 or 2014, coverage must be substantially similar to coverage that the employer would need in order to satisfy the pay-or-play or employer mandate provisions of the ACA;
  • In the plan year that begins in 2013 or 2014, an employer must have met the ACA's minimum value and affordability requirements for a substantial portion of full-time employees; and
  • For the pilot program's duration, an employer's annual aggregate contributions for both primary and limited wraparound coverage must be substantially the same as its aggregate contributions for coverage offered to full-time employees in 2013 or 2014.

The pilot program's duration is limited to an offer of wraparound coverage made no earlier than January 1, 2016, and no later than December 31, 2018. The pilot program also includes an expiration date, which would be the later of:

  • Three years after the date wraparound coverage is first offered; or
  • The date on which the last collective bargaining agreement relating to the plan terminates after the date wraparound coverage is first offered (disregarding any later agreed-upon extensions).

The final regulations will be effective on May 18, 2015.