Finalized Regulations on Excepted Benefits now Available
Finalized regulations on excepted benefits now available
Recently, the IRS, Department of Labor, and Department of Health and Human Services issued final regulations regarding excepted benefits. Specifically, the new regs change the conditions for treating self-insured dental, vision and long-term care (LTC) coverages as excepted benefits. The regs also set the criteria under which employee assistance programs (EAPs) will constitute excepted benefits.
Excepted benefits are exempt from certain group health plan mandates under a variety of legal conventions, including:
- The portability rules of the Health Insurance Portability and Accountability Act (HIPAA; for example, special enrollments),
- The Affordable Care Act (ACA; for instance, the age-26 and preventive-services mandates, enhanced claims and appeals rules, and annual dollar-limit prohibition), and
- Other laws (for example, federal mental health parity requirements).
Offering excepted-benefits coverage doesn’t, however, relieve employers of their responsibility under the ACA’s shared-responsibility (or “play or pay”) provision, satisfy the individual coverage mandate, or disqualify individuals from receiving premium tax credits for procuring coverage via a Health Insurance Marketplace.
The final regs amend the 2004 regulations on excepted benefits, finalizing with a few changes and clarifications the proposed regulations on dental, vision and LTC coverages, as well as EAPs, that were issued last year. Not addressed in the final regs is a proposal to treat limited wraparound coverage as an excepted benefit. The agencies promised that future regulations will address wraparound coverage, taking into account extensive comments on the proposal.
Dental, vision and LTC benefits
Under the 2004 regulations, self-insured dental, vision and LTC coverages are excepted benefits if employees can elect not to receive coverage and if those electing coverage must pay an additional contribution. The final regs adopt a proposal to eliminate the additional contribution requirement. They also clarify that dental, vision and LTC benefits can be provided through the same plan as other group health benefits, a separate plan, or as the only plan offered to participants, so long as:
- Participants may decline the coverage, or
- Claims for the benefits are administered under a contract separate from claims administration for any other benefits under the plan.
By confirming that excepted benefit status is available for these benefits if they’re the “only plan” offered, the final regs appear to resolve some uncertainty regarding situations in which major medical coverage isn’t offered. The rules for insured major medical coverage remain unchanged; it will continue to be an excepted benefit if offered under a separate policy of insurance without regard to participant contributions.
The exception for health Flexible Spending Accounts (FSAs) also remains unchanged. Health FSAs and Health Reimbursement Arrangements that reimburse only dental or vision expenses, while meeting the requirements of the regulations, may separately qualify as excepted benefits, however.
An EAP is an excepted benefit if four conditions are met:
- The EAP doesn’t provide significant benefits in the nature of medical care.
- EAP benefits aren’t coordinated with benefits under another group health plan.
- No employee contributions are required as a condition of EAP participation.
- There’s no cost-sharing under the EAP.
When determining whether significant health care benefits are provided under the first condition, the amount, scope and duration of covered services are taken into account. To meet the second condition, participants must not be required to exhaust EAP benefits before being eligible for benefits under the other plan, and EAP eligibility cannot depend on participation in another plan. (A requirement in the proposed regulations that EAP benefits not be financed by another group health plan wasn’t included in the final regs.)
The preamble to the final regs provides examples of EAPs that do and don’t provide “significant benefits in the nature of medical care.” What’s more, it indicates that the agencies may provide additional clarifications in future guidance. But some employers and advisors may wish that more guidance had been provided on this issue. The preamble also rejects suggestions to treat wellness programs as excepted benefits by including them in an EAP.
Review the regs
The final regs apply for plan years beginning on or after Jan. 1, 2015. Until then, the agencies will treat dental, vision, LTC and EAP benefits that meet the conditions of either the final or proposed regulations as excepted benefits.
If your organization offers dental, vision, LTC and/or EAP benefits, review the final regs carefully with your legal and benefits advisors. Failure to meet the excepted benefit requirements will trigger additional requirements and possibly even noncompliance penalties under HIPAA, ACA and other laws.