The IRS, Department of Labor, and Department of Health and Human Services just issued final regulations that change the rules for standalone dental, vision, and long-term care insurance coverage to be considered exempt from HIPAA and healthcare reform.

Background

“Excepted benefits” are benefits that are exempt from many provisions of federal laws that regulate group health plans—such as:

  • HIPAA’s portability of coverage and nondiscrimination rules;
  • the Affordable Care Act’s rules for covering preventive services and dependents under age 26, and dollar-limit prohibitions; and
  • mental health parity requirements.

A subset of excepted benefits called “limited excepted benefits” include limited-scope vision or dental benefits; benefits for long-term care, nursing home care, home health care, and community based care; and some health flexible spending accounts (health FSAs).

Requirements for Limited Excepted Benefits

In order for a benefit to quality as a “limited excepted benefit,” limited scope dental, vision, and long-term care plans must be:

  • Insured plans offered under a separate policy, certificate, or contract of insurance from group health coverage; or
  • “Not an integral part” of the group health plan.

Until recently, these requirements meant that for self-funded benefits, participants had to be able to decline the coverage, and they had to be charged an additional premium for the coverage.

Limited Scope Dental and Vision

Last year, rules were proposed to eliminate the requirement that participants in self-funded, limited-scope vision or dental benefits be charged an extra premium for the benefit in order for it to qualify as a limited excepted benefit. In some cases, it was discovered that charging participants these premiums could cost employers more than the amount of premiums they collected. Another concern was that employees whose employers did not offer affordable, minimum-value coverage would still be ineligible for premium tax credits from the Health Insurance Marketplace if their employers’ limited-scope dental or vision plans were not considered excepted benefits.

The final rules issued in September 2014 adopted the proposed rules from last year. As a result, limited-scope vision and dental benefits can qualify as limited excepted benefits as long as participants are given the right to decline coverage. Employers are no longer required to charge an additional premium for the benefit.

The updated rules for excepted benefits apply not only to limited-scope dental and vision benefits, but also to long-term care benefits.

Employee Assistance Programs

Some Employee Assistance Programs (EAPs) can also qualify as excepted benefits beginning in 2015 if they:

  • Do not provide significant medical care or treatment.
    • For example, disease management, laboratory testing, prescription coverage, or inpatient residential care would be considered significant medical care and would disqualify an EAP from being considered an excepted benefit. On the other hand, limited outpatient counseling for substance abuse would not disqualify an EAP from being an excepted benefit.
  • Are not coordinated with benefits under another group health plan.
    • That means the EAP cannot be the gatekeeper for the health plan. This means that the participant cannot be required to exhaust EAP benefits before using the health plan and eligibility for participation in the Program cannot be dependent on participation in the health plan.
  • Do not charge employee contributions or copays for participation in the program.

Significance of Excepted Benefits

Limited excepted benefits can offer employers greater flexibility in providing certain benefits to their employees outside of legal requirements for group medical plans. These benefits are exempt from both HIPAA and the ACA, including the requirement to cover adult dependents under age 26, medical loss ratio rules, annual dollar limits, health-based nondiscrimination, and W-2 reporting of benefit value. They are also exempt from the 40% excise tax on high-value plans, known as the “Cadillac tax,” and from the Patient-Centered Outcomes Research Trust Fund (PCORI) fee.

Also, significant to employees whose employers do not offer health coverage is that those employees can still qualify for premium tax credits on a state or federal health insurance exchange even if they enroll in a dental, vision, or other benefit that qualifies as an “excepted benefit.” On the other hand, employees should be aware that enrolling in a limited excepted benefit does not count as minimum coverage for the “individual mandate” requirement of the ACA.

Questions?

Want to know more about excepted benefits? Wondering if your dental, vision, LTC or EAP qualify as excepted benefits? Contact Bell Associate’s ACA experts at 203-707-1300 or email info@bellassoc.com. You can also visit us at www.bellassoc.com.

This article refers to regulations issued through September 30, 2014.  It is intended to be a summary of important issues and should not be considered legal or tax advice.

© Bell Associates and “Ask the Professionals,” 2014. Unauthorized use and/or duplication of this material without express and written permission from Bell Associates is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Bell Associates and “Ask the Professionals” with appropriate and specific direction to the original content.

 

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