In December 2013, the concept of limited wraparound coverage as an excepted benefit was originally proposed. Earlier this year, the Department of Labor (DOL), IRS and Department of Health and Human Services (HHS) simultaneously issued proposed regulations that employers can, in certain circumstances, offer limited health coverage designed to wrap around individual health insurance. Such wraparound coverage would qualify as an excepted benefit exempt from certain health group plan mandates under the Health Insurance Portability and Accountability Act and the Affordable Care Act.
This most recent series of proposed regulations, which would operate as a pilot program, would apply to limited wraparound coverage offered no later than December 31, 2017, and that ends three years after it is first offered (with a specific rule for collectively bargained coverage).
Meaningful additional benefits. The wraparound coverage would need to provide meaningful benefits beyond cost-sharing. Additionally, the wraparound coverage could not solely be an account-based reimbursement arrangement.
Limited cost. Considering employer and employee contributions, the annual cost of the wraparound coverage for employees and dependents could not exceed the maximum annual salary reduction for health Flexible Spending Accounts (FSAs).
Nondiscrimination. Wraparound coverage could not impose pre-existing condition exclusions; discriminate in eligibility, benefits or premiums based on a health factor; or discriminate in favor of highly compensated individuals.
HHS reporting. Employers offering wraparound coverage to part-time employees or retirees would have to report certain information to the HHS. This information would be used to determine whether the exception for wraparound coverage allows employers to provide comparable benefits to workers enrolled in either:
- Minimum essential coverage under an employer-sponsored plan, or
- An individual policy with wraparound coverage.
Separate reporting requirements would apply for coverage wrapping around multistate plan (MSP) program coverage.
Under the ACA, the U.S. Office of Personnel Management (OPM) is required to enter into contracts with insurers to offer at least two MSPs to individuals and small businesses through each state’s Health Insurance Marketplace. Wraparound coverage would have to be approved by the OPM and provide benefits in conjunction with MSP coverage. Wraparound coverage would be limited to part-time employees or retirees eligible for other employer-sponsored health coverage that does not consist solely of excepted benefits, and their dependents. Individuals enrolled in an FSA are not eligible. Coverage would also have to comply with one of two alternative eligibility standards: one related to non-full-time employees and their dependents and the other related to MSP program coverage. An employer sponsoring or participating in the wraparound coverage would have to offer its full-time employees substantially similar coverage to avoid penalties under the employer shared-responsibility provision of the ACA – even if this provision does not apply to the employer.
Clarification of Purpose
Although the proposed regulations help clarify the intended purpose of the exception, they contain no provision for reliance. Employers interested in the concept should be well advised to wait for final regulations before they adopt it.