New Guidance Issued Regarding ‘Excepted Benefits’ under PPACA and HIPAA

By Kristi R. Gauthier, Esq.
Clark Hill PLC

March 11, 2014 – In light of health care reform, employers have been struggling with the concept of “excepted benefits” which are exempt from various group health plan requirements under the Patient Protection and Affordable Care Act (PPACA) and the Health Insurance Portability and Accountability Act of 1996, as amended (HIPAA). The U.S. Department of Treasury, the U.S. Department of Labor, and the U.S. Department of Health and Human Services (Agencies) have issued proposed regulations to expand and clarify the categories of benefits that qualify as “excepted benefits.”

The three main areas of change under the proposed regulations are:

1. Self-Insured Dental and Vision Benefits
Under current regulations, self-insured dental and vision benefits are excepted if they are limited in scope and are not otherwise an “integral part” of a group health plan. Not an “integral part” of a group health plan meant that participants (a) must make an election to receive the dental and/or vision benefits separate from the group health plan benefits and (2) be required to contribute towards the cost of the dental and/or vision coverage. The proposed rules eliminate the prior requirement that participants pay for a portion of the self-funded dental and/or vision benefits so that now all that is required for self-funded dental and vision benefits to be considered “excepted benefits” is that participants make elections for these benefits separate from the group health plan. (Note: the rules for fully-insured dental and vision benefits remain the same in that they must be provided under a separate policy or contract.)

2. Employee Assistance Programs (EAPs)
Under the proposed regulations, EAPs will be considered excepted benefits if the following four criteria are met:

• The EAP does not provide “significant benefits in the nature of medical care”;
• The EAP benefits are not coordinated with benefits under another group health plan, meaning that (a) participants cannot be required to exhaust benefits under the EAP before seeking benefits under the group health plan, (b) participant eligibility cannot be dependent upon participation in a group health plan, and (c) EAP benefits cannot be financed by another group health plan;
• Employees cannot be required to contribute towards cost of EAP coverage; and
• The EAP does not contain any cost sharing (e.g. co-pays or coinsurance).

3. Limited Wraparound Coverage
The proposed regulations also treat certain limited purpose “wraparound coverage” as an excepted benefit if the coverage is offered to employees who purchase coverage on the individual marketplace because the premiums for employer-provided coverage are unaffordable under PPACA standards. The Agencies recognize that the coverage on the marketplace (also known as the “exchange”) may be cheaper than the employer-sponsored coverage, but the marketplace benefits may also be less generous or have a different provider network than the individual would have had in their employer-sponsored group health plan. Such limited wraparound coverage must meet the following requirements in order to be treated as excepted benefits:

• It must wrap around non-grandfathered individual marketplace coverage;
• It must provide benefits beyond those that are provided by the individual coverage (benefits that are not essential health benefits or must cover out-of-network providers, or both) and the primary purpose cannot be to reimburse participants for deductibles, co-payments and coinsurance under the policy;
• It cannot be an integral part of the primary group health plan provided by the employer to a majority of its employees which provides minimum value coverage;
• The cost of the wraparound coverage (employer and employee contributions) cannot be more than 15% of the cost of the primary health plan; and
• It must be offered on a nondiscriminatory basis.

The Agencies provide that at least through 2014, or until the final regulations are issued, dental and vision benefits and EAPs that meet the conditions set forth above will be considered excepted benefits.

Employers should work with their benefits advisors and legal counsel to properly identify any excepted benefits or make the necessary changes to existing benefits so that they qualify for the exceptions if that is the employer’s intent.
*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.