Excepted Benefits and the Affordable Care Act (Benefit Minute)
Excepted benefits are certain categories of limited or supplemental benefits which are not subject to the portability and nondiscrimination requirements of the Health Insurance Portability and Accountability Act (HIPAA). In addition, excepted benefits are exempt from the insurance market reforms of the Affordable Care Act (ACA). As a result, there has been renewed interest in understanding what types of coverage qualify as excepted benefits. Recently guidance provides additional information as described below.
Categories of Excepted Benefits
The four broad categories of excepted benefits are:
- Benefits that do not provide medical coverage, such as automobile insurance, liability insurance and AD&D coverage;
- Benefits that are limited in scope, such as dental, vision, and long-term care;
- Non-coordinated benefits, such as specified disease cancer-only, hospital indemnity and other fixed indemnity insurance. Coverage must be provided under a separate policy and cannot be coordinated with group health plan coverage; and
- Benefits that are supplemental to Medicare, Tricare or similar group health plan coverage. The supplemental coverage must be limited in cost.
Employee Assistance Programs
An Employee Assistance Program (EAP) that provides medical care (i.e. short-term counseling) is generally considered group health plan coverage subject to ACA. The proposed regulations allow EAPs that meet the following criteria to be excepted benefits:
- The EAP cannot provide significant medical benefits (a limit of 10 outpatient visits has been suggested);
- EAP benefits cannot be coordinated with another group health plan;
- The EAP must be provided at no premium cost; and
- The EAP cannot require cost-sharing.
Limited Scope Dental and Vision Benefits
Under HIPAA, limited scope dental and vision benefit must either be offered under a separate policy or contract (fully-insured only) or must be offered as an election separate from medical coverage and with an additional payroll deduction. This is problematic for employers that self-insure dental or vision benefits that are bundled with the medical election and/or provided without a separate payroll deduction.
The proposed regulations eliminate the requirement that participants pay an additional premium. Self-insured limited scope dental and vision coverage will be excepted benefits as long as participants are given an opportunity to waive the dental or vision coverage (even if bundled with medical).
The proposed regulations permit wraparound coverage that can be used by employers who offer minimum essential coverage that provides minimum value but is not affordable to certain employees. The employees for whom the coverage is unaffordable would enroll in a subsidized individual Exchange policy and the employer would offer the wraparound coverage to enhance the Exchange coverage. An applicable large employer would still be subject to the $3,000 penalty for failure to offer affordable coverage. Wraparound coverage must meet certain criteria (as specified in the proposed regulations) to be an excepted benefit.
Health Care Flexible Spending Accounts
In Notice 2013-54, the IRS clarified that health care FSAs must meet the following criteria to be an excepted benefit:
- Only employees eligible for an ACA-compliant employer-sponsored group health plan are eligible for the health care FSA; and
- If the health care FSA includes employer contributions, these contributions must be limited to $500 unless the employer contribution is a matching contribution of up to one dollar for every one dollar of salary reduction.
Fixed Indemnity Policies
Hospital indemnity or other fixed indemnity policies must pay a fixed dollar amount per day (or other period) of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred in order to be excepted benefits. A fixed indemnity policy generally cannot pay on a per-service basis.
In Part XVIII of Affordable Care Act Implementation FAQs, the Department of Labor indicated that group indemnity policies that pay on a per-service basis may still qualify as excepted benefits if the coverage meets the criteria for supplemental coverage (including the limited in cost requirement). The DOL also stated that future regulations will be proposed to allow individual indemnity insurance policies to pay benefits on a per-service basis and still qualify as an excepted benefit if certain requirements are met (including a requirement that it be sold only to individuals with minimum essential coverage).