Final Rule on Wraparound Coverage as an Excepted Benefit

The Obama administration issued a final rule this week that clarifies how employers and insurers can use “wraparound” coverage for employees as long as employers and insurers meet certain conditions. Wraparound coverage essentially wraps around individual health insurance so that it is more comparable to the comprehensiveness of coverage offered under an employer-sponsored plan. For example, it could be used to pay for prescription drugs not covered in the primary health plan.

Wraparound coverage is of interest to employers that offer robust employer-sponsored plans but may be unaffordable to certain employees (e.g., part-time or low-wage workers). While these employees can purchase individual marketplace coverage, employers can offer wraparound coverage as an additional benefit. Employers have been concerned that this wraparound coverage could be viewed and regulated as health insurance and thus be swept into the Affordable Care Act standards. Regulation of wraparound coverage as health insurance would also affect employees’ eligibility for marketplace financial assistance. Employers have asked the administration for clarity on how wraparound coverage would work as a type of limited “excepted” benefit.

Excepted benefits are popular among many employers who want to provide benefits in addition to primary health insurance; for example, flexible spending accounts (FSAs), various types of employee assistance programs like mental health counseling, or as the subject of this week’s final rule, wraparound coverage.

Excepted benefits are generally exempt from the health insurance market reforms of the ACA. For a more detailed look at excepted benefits, see an issue brief done by CHIR’s Kayla Connor here.

In its final rule, the administration lays out the requirements that would make wraparound coverage a type of limited “excepted” benefit. Group health plan sponsors can qualify wraparound coverage as a limited excepted benefit if the coverage starts no earlier than January 1, 2016 and no later than December 31, 2018. Coverage must also end three years from the date the wraparound coverage is offered or the date in which the last collective bargaining agreement terminates after the date wraparound coverage is first offered, whichever is later.

The final rule also finalizes that plan sponsors can offer limited wraparound coverage when primary coverage complies with one of the two alternative sets of standards relating to eligibility and benefits; when primary coverage is either an individual health insurance plan or a multi-state plan (MSP) as long as certain conditions are met under each scenario. When limited wraparound coverage is offered in conjunction with an individual health insurance plan (i.e., with part-time employees or retirees), the final rule reiterates that this circumstance is intended for employers offering affordable, minimum value coverage to their full-time workers but also wanting to offer an additional limited benefit to their part-time workers or retirees. When wraparound coverage is offered in conjunction with a MSP, the final rule states that it is permissible if the employer was offering reasonably comprehensive coverage prior to these final rules, and wishes to offer limited wraparound coverage while still contributing roughly the same total amount toward their employees’ health benefits. The reasoning for why wraparound coverage is only available with a MSP in this scenario is unclear. As Tim Jost points out in his Health Affairs blog, it may simply be a matter of placing oversight with the Office of Management and Personnel rather than Health and Human Services, which may make it less likely that an insurer would coordinate wraparound and primary marketplace coverage to the disadvantage of an enrollee.

The final rule provides five requirements that plan sponsors must meet with their wraparound coverage to qualify such coverage as a limited excepted benefit. First, wraparound coverage must provide an additional meaningful benefit beyond covering the cost-sharing of the primary health plan. Examples of an additional meaningful benefit that the final rule provides include reimbursement for the full cost of primary care, the cost of prescription drugs not on the formulary of the primary plan, coverage for ten physician visits per year considered out-of-network by the primary plan, access to onsite clinics or specific health facilities at no cost, or benefits targeted to a specific population (such as coverage for certain orthopedic injuries), home health coverage, or coverage of other benefits that are not covered essential health benefits under the primary plan. Second, the wraparound coverage must be limited in amount. Specifically, the annual cost of coverage per employee cannot exceed the maximum annual contribution for health FSAs (e.g., $2,550 for 2015) or 15 percent of the cost of coverage of the primary health plan.

Third, plan sponsors cannot discriminate either by excluding preexisting conditions or by health status in the eligibility, benefits or coverage of their wraparound coverage.  Similarly, plan sponsors cannot discriminate in favor of highly compensated employees with the eligibility, benefits, or coverage of the primary health plan and wraparound coverage. Fourth, plan sponsors cannot combine multiple excepted benefits into an arrangement that functions like a substitute for primary group coverage and be exempt from ACA health market reforms. The final rule specifically prohibits individuals from participating in a FSA and having wraparound coverage. In addition, coverage has to comply with one of the two alternative sets of standards relating to eligibility and benefits: individual health plan for part-time employees or retirees and MSP coverage discussed above.

Fifth, plan sponsors who offer wraparound coverage must file reports with applicable federal agencies (Department of Health and Human Services or the Office of Personnel Management), depending on the type of the primary health plan.

This week’s final rule is likely to answer some questions from plan sponsors who want to continue providing wraparound coverage and have those benefits be exempt from ACA health market reforms beginning in 2016. As this area of excepted benefits, including wraparound coverage, continues to evolve, federal oversight will be critical to ensure that plan sponsors are providing excepted benefits as a value added for their employees and not as a substitute for comprehensive health insurance.

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