8864 / When will employer-provided "wraparound" coverage constitute excepted benefits that are not subject to the ACA market reform provisions?

The departments of Treasury, Health and Human Services and Labor have released final rules that outline the requirements that certain limited health benefits, which are "wrapped around" employer-sponsored health coverage, must meet in order to qualify as excepted benefits that would not preclude the employee from claiming a premium tax credit.

The rules establish five requirements that employer-sponsored wraparound coverage offered in conjunction with an individually purchased health plan must satisfy in order to constitute an excepted benefit that would not jeopardize an employee's eligibility to claim a premium tax credit. The limited wraparound coverage must:

1. Be specifically designed to supplement eligible individual health coverage by providing additional meaningful benefits;
2. Be limited in amount. The final regulations set the limit as the greater of the maximum permitted annual salary reduction toward a health FSA or 15 percent of the cost of coverage under the primary plan;
3. Satisfy certain nondiscrimination requirements by not (a) imposing preexisting condition exclusions, (b) discriminating based on any individual health factors or (c) being excludable from the employee's income under IRC Section 105;
4. Provide that individuals who are eligible for the wraparound coverage cannot also be enrolled in excepted benefit coverage that is a health FSA, and meet certain standards with respect to eligibility designed prevent employers from failing to offer minimum essential health coverage to full-time employees as otherwise required by the ACA; and
5. Satisfy certain reporting requirements by submitting certain information to the Office of Personnel Management that is sufficient to allow it to determine whether the coverage meets these requirements.

These rules applied as a pilot program with a sunset date, so that the wraparound coverage must be first offered no earlier than January 1, 2016 and no later than December 31, 2018, and end on the later of (1) the date that is three years after the date the wraparound coverage is first offered or (2) the date on which the last collective bargaining agreement relating to the plan terminates after the date the wraparound coverage is first offered.¹

Planning Point: Jointly, the IRS, DOL and HHS have proposed regulations² that would allow certain fertility benefits to be classified as excepted benefits.  Excepted benefits are generally exempt from ACA market reforms and certain HIPAA requirements.  Under the proposed regulations, fertility benefits can qualify as excepted benefits if (1) substantially all of the benefits are for diagnosis, mitigation or treatment of infertility or certain other related reproductive health conditions, (2) the benefits are capped at a maximum of $120,000 for the participant and their beneficiaries, indexed for inflation for plan years starting after 2028, and (3) the employer provides a notice clearly describing the coverage and meets other requirements.  To qualify as an excepted benefit, the fertility benefits either (1) must be provided under a separate policy, certificate or contract of insurance or (2) otherwise must not be an integral part of the employer's traditional group health plan.