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Final Regulations Allow for Employer Limited Wraparound Coverage

Early in 2014, the Internal Revenue Service (IRS), Department of Labor (DOL) and Health and Human Services (HHS) jointly proposed regulations for dental and vison benefits, Employee Assistance Plans (EAPs) and limited wraparound coverage that would make these coverages "excepted" benefits and not subject to all the laws attached to other group health insurance coverage.

Subsequently, the proposed regulations for dental and vision benefits and EAPs were finalized. This is an update to the "Final Rules for Excepted Benefits" Alert, dated November 25, 2014, discussing the dental and vision finalized regulations. After comments were received, the Agencies published a new set of final regulations that provides for a "pilot program" which would allow employers to offer benefits to those acquiring individual coverage at the Marketplace and certain Multi-State Plan (MSP) coverage that is comparable to group health plan coverage.

The pilot program is for wraparound coverage that is first offered no earlier than January 1, 2016 and no later than December 31, 2018 and ends no later than on the later of:

  1. the date that is three years after the date wraparound coverage is first offered; or
  2. the date on which the last collective bargaining agreement relating to the plan terminates after the date wraparound coverage is first offered.

Wraparound coverage cannot replace group coverage, but can deliver additional coverage through a group health plan to individuals and families enrolled in non-grandfathered, non-transitional, individual health insurance that does not consist solely of excepted benefits, Basic Health Program (BHP) coverage or certain MSP coverage when employees might find employer coverage unaffordable.

There are five requirements that wraparound coverage must follow in order to be considered excepted benefits:

  1. Covers Additional Benefits
    The limited wraparound coverage would have to be specifically designed to wrap around eligible individual health insurance, BHP or MSP coverage. The limited wraparound coverage must not only provide benefits under a coordination-of-benefits provision and must not consist of an account-based reimbursement arrangement.

    Meaningful benefits offered in wraparound coverage may include reimbursement for the full cost of primary care, the cost of prescription drugs not on the formulary of the primary plan, ten physician visits per year, services for out-of-network providers or onsite clinics.
  2. Limited in Amount
    The wraparound plan must be limited in amount. The total cost of the coverage per employee (and any covered dependents) under the limited wraparound coverage cannot exceed the greater of the amount of:
    1. the maximum annual contribution for health Flexible Spending Accounts (FSAs) which is $2,500 (indexed) ($2,550 in 2015); or
    2. fifteen percent (15%) of the cost of coverage under the primary plan.

    In either calculation, the cost of the limited wraparound coverage must include both employee and employer contributions towards coverage and be determined in the same manner as premiums calculated under COBRA.

  3. Nondiscrimination
    The wraparound plan must meet three requirements:
    1. cannot impose any preexisting condition exclusion;
    2. cannot discriminate against individuals in eligibility, benefits or premiums based on any health factor of an individual or their family members; and
    3. cannot discriminate in favor of highly compensated employees.
  4. Plan Eligibility Requirements
    Individuals eligible for the limited wraparound coverage cannot be enrolled in excepted benefit coverage that is a health FSA. In addition, plans must comply with one of two alternative sets of standards relating to eligibility and benefits.
    1. Either it applies to wraparound benefits offered in conjunction with eligible individual health insurance or BHP coverage.
      1. The employer offering wraparound coverage offers its full-time employees coverage that is substantially similar to coverage that the employer would need to offer to its full-time employees in order not to be subject to a potential assessable payment under the employer shared responsibility provisions. In the event that the employer has no full-time employees for any plan year limited wraparound coverage is offered, the requirements of this standard is met. 
      2. Must be offered to employees who are not full-time employees (and their dependents) or who are retirees (and their dependents). Full-time employees are those employees who are reasonably expected to work at least an average of 30 hours per week.
      3. The other employer group health plan, not limited to excepted benefits, must be offered to individuals eligible for the wraparound coverage. Only employees eligible for other group health plan coverage may be eligible for the wraparound coverage.
    2. Or, it applies to coverage that is a wraparound of certain MSP coverages and must satisfy four requirements. The Office of Personnel Management (OPM) may verify that plans and issuers have reasonable mechanisms in place to ensure the contributing employers meet these standards.
      1. The limited wraparound coverage must be reviewed and approved by the OPM to provide benefits in conjunction with coverage under an MSP under Section 1334 of the Affordable Care Act (ACA).
      2. The employer must have offered coverage in the plan year that begins in either 2013 or 2014 that is substantially similar to coverage that the employer would need to have offered to its full-time employees in order not to be subject to the employer shared responsibility provisions.
      3. In the plan year that begins in either 2013 or 2014, the employer must have offered coverage to a substantial portion of full-time employees that provided minimum value and was affordable. In the event the employer has no full-time employees for any plan year limited wraparound coverage is offered, the requirements of this standard is met. 
      4. For the duration of this pilot program, the employer's annual aggregate contributions for both primary and limited wraparound coverage must be substantially the same as the employer's aggregate contributions for coverage offered to full-time employees in 2013 or 2014. This condition is met if contributions were at least 80 percent of contributions made in 2013 or 2014, applied on an average, to full-time worker basis.
  5. Reporting Requirements
    The fifth and final requirement of this proposed regulation is a reporting requirement for group health plans and group health insurance issuers, as well as group health plan sponsors.

    A self-insured group health plan or group health insurance issuers offering wraparound coverage in connection with MSP coverage will report to OPM. In addition, the plan sponsor of any group health plan offering limited wraparound coverage that wraps around eligible individual health insurance, BHP or MSP coverage must report to HHS.

    The reporting requirements will allow HHS to determine if plan sponsors provide workers with comparable benefits or if the wraparound coverage offered by the plan sponsor is causing an erosion of coverage. The entire set of final regulations can be found here.

126 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 146, 78 Fed. Reg. 77632 (Dec. 24, 2013)
226 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 146, 79 Fed. Reg. 59130 (Oct. 1, 2014)
326 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 146, 80 Fed. Reg. 13995 (March 18, 2015)


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