Clarification And Expansion Are Sought For Proposed Regulations On Amendments To Excepted Benefits

The Employers Council on Flexible Compensation (ECFC) has recently submitted comments to the Employee Benefits Security Administration (EBSA), suggesting that proposed regulations issued on Dec. 24, 2013, be clarified to provide that limited scope vision and dental benefits offered on a stand-alone basis, no matter if they are self-funded or fully insured, are automatically considered excepted benefits. Excepted benefits are generally exempt from such Patient Protection and Affordable Care Act (ACA) market reforms as prohibitions on lifetime and annual limits and on preexisting condition exclusions. The ECFC further recommends that clarification be issued that the reason stand-alone limited scope dental and vision plans are excepted benefits is because they are per se “not an integral part of a group health plan.”

Health FSAs. The ECFC also is recommending that the current provision characterizing health FSA benefits as excepted benefits for participants to whom other group health coverage is made available be expanded to make health FSAs allowable for employees who do not have group health plan coverage offered to them by their employers. This would let employers who do not offer group coverage enable their employees to pay for some health care expenses on a tax-advantaged basis. Also, the ECFC points out, the enactment of the ACA now eliminates concerns that employers will attempt to “mask” group health coverage as FSA excepted benefits, or that they would offer FSA coverage as a substitute for group health coverage, since salary reductions for health FSAs are capped at $2,500 and employer contributions cannot exceed the greater of $500 or two times the employee salary reduction contribution.

Wraparound benefits. The ECFC, whose member companies assist in the administration of cafeteria plan and health benefits for over 33 million employees and dependents, also included in its comments a recommendation that a new limited scope wraparound excepted benefit set out in the proposed regulations be characterized as excepted benefit coverage under a fourth category of excepted benefits (PHSA Sec. 2791(c)(4)), which also would make applicable existing and subsequent regulation of the limited scope wraparound coverage consistent with other ongoing oversight, the ECFC says. Wraparound coverage is an excepted benefit consisting of coverage offered by employers that supplements a health plan purchased on the exchange, where the employer plan is unaffordable for employees. The proposed regulations had placed the wraparound excepted benefit in a second category of excepted benefits (PHSA Sec. 2791 (c)(2)), which is for benefits excepted if offered separately, including limited scope dental or vision benefits. The ECFC says that the limited scope wraparound coverage differs from coverage usually excepted under the second category because benefits in the new proposed regulation are specifically designed to be offered alongside and wrap around other health coverage, and the wraparound coverage can only be offered to individuals eligible for coverage under an employer’s group health plan, making it similar to other supplemental coverage provided under a group health plan. PHSA Sec. 2791(c)(4) excepts supplemental coverage, such as Medicare supplemental health insurance, that is offered as a separate insurance policy.

Wellness programs. Finally, the ECFC is recommending the explicit statement be made that wellness and disease management programs that do not provide “significant benefits in the nature of medical care” are also excepted benefits. Wellness programs share many of the same features of employee assistance programs (EAPs), which, according to the proposed regulations, are considered excepted benefits, if they meet certain requirements and do not “provide significant benefits in the nature of medical care or treatment.” The ECFC points out that both EAPs and wellness programs are complementary to group health programs, and that, although they may affect someone’s physical or mental health, they are not sources of significant medical coverage. Both tend to be free and both EAPs and wellness programs are typically provided through third-party vendors.

The ECFC adds that previously-issued IRS guidance included wellness plans in the list of coverage that does not disqualify someone from contributing to a health savings account. The IRS guidance also provided that wellness programs do not provide significant benefits such as medical care or treatment, so they are not health plans. The inclusion of wellness programs as excepted benefits, says the ECFC, will ensure that employees will not be prevented from receiving premium subsidies or tax credits from the marketplace merely because their employer includes them in a wellness program.

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