One of the many challenges presented by the Affordable Care Act (ACA) relates to what are known as “excepted benefits”. Excepted benefits are exempt from some, but not all laws impacting employee benefits including but not limited to the HIPAA portability rules, as well as the market provisions of the ACA. On December 24, 2013, the ACA’s governing agencies (DOL, IRS and HHS) issued proposed regulations addressing certain of these excepted benefits; specifically, limited-scope dental and vision benefits and employee assistance programs (EAPs). In addition, the regulations propose a new type of excepted benefit known as a “limited wraparound benefit”. Learn more in this bulletin.

1. CBIZ Health Reform Bulletin
Subject: Excepted Benefit Proposed Regulations
Date:
January 6, 2013
One of the many challenges presented by the Affordable Care Act (ACA) relates to what are
known as “excepted benefits”. Excepted benefits are exempt from some, but not all laws
impacting employee benefits including but not limited to the HIPAA portability rules, as well as
the market provisions of the ACA. On December 24, 2013, the ACA’s governing agencies
(DOL, IRS and HHS) issued proposed regulations addressing certain of these excepted
benefits; specifically, limited-scope dental and vision benefits and employee assistance
programs (EAPs). In addition, the regulations propose a new type of excepted benefit known as
a “limited wraparound benefit”.
LIMITED-SCOPE DENTAL AND VISION BENEFITS
As background, a limited scope dental or vision benefit is excepted if coverage is provided under
a separate and independent policy; or, if it is not a separate and independent policy, for
example, in the case of a self-funded situation, the dental or vision plan is not integral with the
health plan. What this means is that the participants must have the right to elect or decline the
dental or vision coverage; and if elected, there must be a separate cost for the coverage. These
regulations propose to eliminate the separate cost requirement. Thus, a limited scope dental or
vision plan, including a self-funded plan, can be excepted without obligating the plan to charge a
separate premium for the benefit.
EMPLOYEE ASSISTANCE PROGRAMS (EAP)
Generally, an EAP that provides significant coverage in the form of medical benefits is subject to
the ACA. Guidance to date provides that as long as the medical care provided by the EAP is not
significant, the EAP would be considered excepted. These regulations propose that in 2015 and
beyond, four conditions must be met for the exception to apply:
1. The EAP cannot provide significant medical care.
2. The benefits under the EAP cannot be coordinated with another health benefit plan.
Specifically, health coverage cannot be contingent upon first accessing coverage under
the EAP, and the EAP benefit cannot be contingent on participating in the health plan.
3. The EAP cannot be financed by another group health plan.
4. There cannot be any cost-sharing imposed by the EAP.
LIMITED WRAPAROUND COVERAGE
The regulations propose a third type of excepted benefit known as a limited “wraparound”
benefit. Relevant to employers subject to ACA’s shared responsibility requirement, the
wraparound coverage would be available to individuals for whom the employer coverage is
deemed unaffordable. Important to this wraparound coverage is that the employer must offer
coverage that meets both minimum value (pays at least 60% of total allowed cost of benefits
under the plan) and is affordable (the employee’s contribution does not exceed 9.5% of his/her
household income) for the majority of its employees.
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2. CBIZ Health Reform Bulletin
The premise behind the wraparound coverage is that if the employer coverage is unaffordable
to certain employees, the employee could forego the employer coverage and obtain individual
coverage together with the wraparound coverage. The employer would, of course, risk an
employer shared responsibility penalty for failure to offer adequate coverage at an affordable
rate. Therefore, whether this wraparound concept will be attractive to employers remains to be
seen.
Requirements of Wraparound Coverage
According to the proposed regulations, wraparound coverage would be deemed an excepted
benefit if all of the following criteria are met:
1. The wraparound coverage must be coordinated with a non-grandfathered individual
policy. The individual policy cannot be excepted coverage.
2. The wraparound coverage must cover non-essential health benefits, or reimburse the
cost of care provided by out-of-network health care providers, or both. And, such
coverage can cover cost-sharing under the individual policy; though, the coverage of
cost sharing cannot be the only benefit that the wraparound policy provides.
3. The plan sponsor offering such wraparound coverage must sponsor another group
health plan that meets the minimum value standard and the affordability standard for a
majority of its employees. Only individuals eligible for this primary plan may be eligible
for the wraparound coverage.
4. The cost of the wraparound coverage can be no greater than 15%, including both the
employer and employee share, of the cost of the primary coverage.
5. The wraparound coverage cannot discriminate as to eligibility, benefits, or premiums
based on health status; nor can it discriminate as to salary.
EFFECTIVE DATE
Comments on these proposed regulations must be submitted by February 24, 2014.
Employers can rely on these proposed regulations for purposes of limited scope dental and
vision plans, and for EAPs. If final guidance is more restrictive, its effect will be prospective.
Time will tell whether and how the rules surrounding the wraparound benefit proposal plays
out. This wraparound concept is not available until regulations become final; at the earliest,
this would be 2015.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ
Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with
particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese
is based in the CBIZ Leawood, Kansas office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these
comments directed to specific situations. The information contained herein is provided as general guidance and may
be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute
for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific
situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages
whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other
factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that,
unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used,
and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal
Revenue Service.
January 6, 2014 – HRB 86
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