Excepted Benefits Update – Wraparound Coverage

Chris Allesee

The Departments of Treasury, Labor, and Health and Human Resources have been busy lately in the field of excepted benefits, which have the luxury of avoiding HIPAA requirements and the ACA market reforms. On October 1, 2014, the Departments issued final regulations making limited scope vision and dental benefits easier to classify as excepted benefits for self-insured plans, and outlining the criteria through which an employee assistance program (EAP) may also be considered an excepted benefit. In the final regulations, the Departments note that limited wraparound coverage was a hot-topic among commenters to the proposed regulations, and would be addressed shortly.

As promised, on December 23, 2014, the Departments issued a new round of proposed regulations offering guidance and soliciting additional comments concerning wraparound coverage as a limited excepted benefit. The concept behind wraparound coverage is that an employee who is eligible for a premium tax credit may still receive additional low-cost, employer-sponsored coverage that supplements the watered-down benefits found in many Marketplace plans (e.g. plans offering only essential health benefits). As an excepted benefit, this coverage that “wraps around” the Marketplace plan benefits would not prevent the employee from being eligible for the premium tax credit. Thus, the employee could take advantage of a Marketplace subsidy while also retaining the wider variety of benefits often found in employer-sponsored group health plans.

While this may be an intriguing option for some employers, making this benefit available to your employees is not without its difficulties. The proposed regulations are designed in part to prevent employers from using wraparound coverage to push employees to subsidized Marketplace plans, and compliance means meeting several requirements and a fresh set of reporting obligations. Further, wraparound coverage may only be offered to a select population of employees, including retirees, part-time employees, and employees purchasing individual plans through the Multi-State Plan program. So, depending on the composition of your workforce, there may be relatively few people to whom you can offer the coverage.

Fortunately, the proposed regulations also establish a pilot program, and the Departments will recognize excepted status for wraparound coverage that complies with the regulations if it is offered before December 31, 2017. For a calendar year plan, this means you may be able to offer wraparound coverage as an excepted benefit beginning as late as the January 1, 2017 plan year. Under the pilot program, an employer may also choose to offer the benefit for up to two additional plan years, and possibly longer if it is tied to a collective bargaining agreement. As a result, you have plenty of time to consider whether offering wraparound coverage is worth the additional administrative burden, and to make sure you do it the right way.