FAQs Address When Supplemental Health Coverage Constitutes Excepted Benefits


The Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (the Departments) have jointly issued frequently asked questions (FAQs) (see Text: FAQs About Affordable Care Act Implementation (Part XXIII)) that address the circumstances under which coverage that supplements group health coverage qualifies as excepted benefits, which are generally exempt from the Patient Protection and Affordable Care Act’s (ACA) market reform requirements.

Background. Benefits are excepted supplemental benefits only if they are provided under a separate policy, certificate, or contract of insurance. Additionally, these benefits must be characterized as Medicare supplemental health insurance (Medigap), TRICARE supplemental programs, or “similar” supplemental coverage provided to coverage under a group health plan.

Regulations provide that similar supplemental coverage “must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.”

The Departments issued guidance in 2007 and 2008 on the circumstances under which supplemental health insurance would be considered excepted benefits under PHSA Sec. 2791(c). In addition to the requirement that the coverage be issued as a separate policy, certificate, or contract of insurance, the guidance lists the following four criteria that the Departments will apply to determine if supplemental coverage is similar to Medigap or TriCare and therefore qualifies as an excepted benefit:

● the policy, certificate, or contract of insurance must be issued by an entity that did not provide the primary coverage under the plan
●the supplemental policy, certificate, or contract must be designed to fill gaps in the primary coverage;
●the cost of the supplemental policy must not be more than 15 percent of the cost of the primary coverage; and
●the coverage cannot differentiate among individuals in eligibility, benefits, or premiums due to a health factor exhibited by an individual.

Meaning of coverage designed to “fill in the gaps.” The FAQs provide that in determining whether insurance coverage sold as a supplement to group health coverage can be considered “similar supplemental coverage” and an excepted benefit, the Departments will continue to apply the applicable regulations and the four criteria indicated in the previous guidance.

In addition, the Departments intend to propose regulations clarifying the circumstances under which supplemental insurance products that do not fill in cost-sharing under the primary plan are considered to be specifically designed to fill gaps in primary coverage. Specifically, the Departments intend to propose that coverage of additional categories of coverage would be considered to be designed to “fill in the gaps” of the primary coverage only if the benefits covered by the supplemental insurance product are not an essential health benefit (EHB) in the state where it is being marketed. If any benefit in the coverage is an EHB in the state where it is marketed, the insurance coverage would not be an excepted benefit under the intended proposed regulations.

Failure to comply. The FAQs also indicate that the Departments will not initiate an enforcement action if an issuer of group or individual health insurance coverage fails to comply with the provisions of the PHSA, ERISA, and the Code, as amended by the ACA, with respect to health insurance coverage that:

● provides categories of benefits that are not essential health benefits (instead of coverage that is meant to fill in cost-sharing gaps) in the applicable state;
● complies with regulations and meets requirements for “similar supplemental coverage”; and
● has been filed and approved with the state.

SOURCE: FAQs About Affordable Care Act Implementation (Part XXIII), February 13, 2015.

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