1. News Flash: December 23, 2013—Agencies Release Proposed Rules on Excepted Benefits
On December 20, 2013, the agencies charged with implementing the health care reform law (the
Departments of Labor, Treasury and Health and Human Services) issued proposed rules that amend
previously issued regulations defining excepted benefits. Excepted benefits are generally exempt from
many of the requirements that apply to other employer-sponsored plans under the Health Insurance
Portability and Accountability Act (HIPAA) and the Patient Protection and Affordable Care Act (PPACA).
Background
Any employer-sponsored plan – whether insured or self-insured – that provides, pays for or reimburses the
cost of health care is a “group health plan” that may be subject to certain requirements under HIPAA and
PPACA. To the extent that a plan consists of “excepted benefits,” the plan is exempt from certain
requirements under HIPAA and PPACA. There are four categories of excepted benefits:




Benefits that are generally not health coverage such as automobile insurance, liability insurance,
workers compensation, and accidental death and dismemberment coverage are excepted in all
circumstances.
Limited scope benefits. May include limited scope vision or dental benefits and benefits for longterm care, nursing home care, home health care, or community based care. These benefits are
excepted if certain conditions are met:
o Provided under a policy, certificate or contract of insurance separate from a major medical
plan or
o Coverage is optional, with employees who elect the coverage being required to pay an
additional amount for it.
Non-coordinated excepted benefits. Includes both coverage for only a specified disease or illness
(such as cancer-only policies) and hospital indemnity or other fixed indemnity insurance. These
benefits are excepted only if certain conditions are met:
o Provided under a separate policy, certificate or contract of insurance
o No coordination between the provision of such benefits and any exclusion of benefits under
any group health plan maintained by the same plan sponsor
o Benefits are paid with respect to any event without regard to whether benefits are provided
under any group health plan maintained by the same plan sponsor.
Supplemental excepted benefits. Supplemental coverage is provided under a policy, certificate or
contract of insurance that is a Medicare or Tricare supplement or “similar” supplemental coverage
that is specifically designed to fill gaps in the primary coverage, costs no more than 15% of the cost
for the primary coverage, and does not vary eligibility, premiums or benefits based on any health
factor of an employee or dependent.
Proposed Rules
The proposed rules, which would be effective for plan years starting in 2015, would amend the
requirements for some of the limited scope categories of excepted benefits. Specifically, the proposed rules
would affect dental and vision benefits, certain wraparound coverage, and employee assistance programs
(EAP). Highlights of the proposed rules include the following:

Eliminate the requirement under the HIPAA regulations that participants pay an additional premium or
contribution for limited-scope vision or dental benefits to qualify as benefits that are not an integral part
of a plan.

2. 
Treat certain wraparound coverage provided under a group health plan as excepted benefits when
specific conditions are met:
o
o
o
o
o

Wraps around only certain individual insurance policies—not grandfathered coverage and not
coverage consisting solely of excepted benefits;
Specifically designed to provide benefits beyond the individual insurance policy—wraparound
coverage that is in addition to essential health benefits or reimburses out-of-network health care
provider costs;
Not an integral part of an employer’s primary group health plan—the employer sponsors another
group health plan meeting minimum value requirements and is affordable for a majority of the
employees eligible for that group health plan;
Limited in amount—the total cost of the wraparound coverage does not exceed 15% of the cost of
coverage under the employer’s primary group health plan; and
Nondiscriminatory—wraparound coverage does not discriminate (in regards to eligibility, benefits or
premiums) based on any health factor or in favor of highly compensated individuals, nor does the
wraparound coverage impose any preexisting condition exclusion.
Consider an EAP to be an excepted benefit if the EAP meets the following criteria:
o
o
o
o
o
Not provide significant benefits in the nature of medical care
Not coordinated with benefits under another group health plan
- Participants in the separate group health plan must not be required to exhaust EAP
benefits before an individual is eligible for benefits under the other group health plan
- Participant eligibility for EAP benefits must not be dependent on participation in
another group health plan
- EAP benefits must not be financed by another group health plan
Not financed by another group health plan
Not require employee premiums or contributions to participate in the EAP
Not allow any cost sharing under the EAP
The agencies invite comments on how to define “significant” (e.g., whether a program that provides no
more than 10 outpatient visits for mental health or substance use disorder counseling, an annual
wellness checkup, immunizations, and diabetes counseling, with no inpatient care benefits, should be
considered to provide significant benefits in the nature of medical care).
The National Legal & Research Group is reviewing the guidance and will provide additional details in future
publication(s).
The information in this publication is not intended as legal or tax advice and has been prepared
solely for informational purposes. You may wish to consult your attorney or tax adviser
regarding issues raised in this publication.