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February 20, 2014

Proposed Rule Would Create a New Category of Benefits Not Subject to the Affordable Care Act's Group Health Plan Mandates: Limited Wraparound Coverage

Late last year, the Departments of Treasury, Labor, and Health and Human Services, which are responsible for implementing the Affordable Care Act1 (collectively, the “Departments”), published a proposed rule2 that would create a new category of benefits not subject to the Affordable Care Act’s group health plan mandates3: limited benefits that wrap around benefits provided through individual health insurance coverage. The preamble states that the purpose of this new rule is to allow employers to provide comprehensive overall coverage to employees for whom the employer’s plan is unaffordable, when an employee declines the employer’s primary coverage and enrolls in a plan in a health insurance Marketplace.4 Comments are due on the proposal by February 24, 2014.

Wraparound benefits would have to meet all of the following requirements in order to avoid being subject to the Affordable Care Act’s group health plan mandates:

  • The coverage wraps around non-grandfathered individual health insurance coverage that provides ACA-mandated benefits.
  • The wraparound plan covers benefits beyond the individual insurance, such as reimbursing the cost of out-of-network providers.
  • The plan sponsor offering the limited wraparound coverage must sponsor another group health plan meeting the 60 percent minimum value standard and that plan must be affordable for a majority of the employees eligible for that plan (“primary plan”). Only individuals eligible for this primary plan may be eligible for the wraparound coverage. The subset of employees for whom the primary plan is not affordable (i.e., required contribution for self-only coverage is more than 9.5 percent of their household income) would be able to receive the wrap coverage without losing the premium assistance tax credit for the plan they purchase in a Marketplace.5
  • The total cost of coverage under the wraparound coverage must not exceed 15 percent of the cost of coverage under the primary plan, determined in the same manner as premiums for continuation of coverage under COBRA.
  • The coverage may not discriminate based on a health factor, may not impose any preexisting condition exclusion, and may not discriminate in favor of highly compensated individuals.

Receiving wraparound coverage would not disqualify an employee from enrolling in a Marketplace plan and receiving the premium assistance tax credit. However, it would not protect an employer from imposition of the employer shared responsibility penalty for not providing minimum value and affordable coverage.6

Comments on the proposed rule are due on or before February 24, 2014.

Implications for Employers

The proposed limited wraparound benefit opens a new possibility for employers with low-wage workers who cannot afford the existing group health plan coverage. While the details of the wraparound benefit are complicated, it is likely that employers with workers who could be eligible for the federal premium assistance tax credit will want to explore whether a new wraparound benefit could be offered to them. The economic ramifications of such a design would have to be carefully considered, and the implications for the employer shared responsibility penalty7 would have to be taken into account.

The proposal for wraparound coverage would be effective for plan years starting in 2015. Final regulations are expected to be effective in 2015.

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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related guidance, including the proposed guidance summarized in this Capital Checkup. Sibson Consulting can be retained to work with plan sponsors and their attorneys on compliance issues.

 

1 The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)

2 The proposed rule was published in the December 24, 2013 Federal Register. (Return to the Capital Checkup.)

3 The Affordable Care Act requires non-grandfathered group health plans to provide in-network coverage for an extensive list of preventive services without imposing any cost-sharing requirements. The lists are developed by the United States Preventive Services Task Force (USPSTF) and other groups. List of required preventive services are available on the healthcare.gov website. (Return to the Capital Checkup.)

4 “Marketplace” is the federal government’s term for what the Affordable Care Act refers to as an “Exchange.” (Return to the Capital Checkup.)

5 The Departments have not yet addressed how affordability will be certified with respect to this particular rule. (Return to the Capital Checkup.)

6 The 4980H(a) penalty (generally, $2,000 multiplied by the total number of full-time employees) would not be imposed because the employer is offering coverage. However, the 4980H(b) penalty would apply if a full-time employee’s coverage is not affordable and the employee enrolls in a Marketplace and receives the premium assistance tax credit. In that case, the penalty would be $3,000 per year times the number of full-time employees who actually receive the tax credit in a Marketplace. (Return to the Capital Checkup.)

7 The Affordable Care Act imposes an employer shared responsibility penalty on large employers with at least 50 full-time equivalent employees under certain conditions. For information about that penalty, see Sibson’s January 25, 2013 Capital Checkup, “IRS Proposes Rule on Employer Penalty Under the Affordable Care Act.” (Return to the Capital Checkup.)