The final rule on wraparound coverage under the Affordable Care Act1 issued by the Departments of Treasury, Labor, and Health and Human Services (collectively, the "Departments" responsible for implementing the law) allows employers to provide limited benefits that supplement (or "wrap around") coverage obtained through certain individual health insurance policies.2 The final rule describes two kinds of limited wraparound benefits: those available only to part-time employees or pre-Medicare eligible retirees enrolled in individual health insurance policies (such as a plan available through a Marketplace3) and those that can be used to supplement multi-state plans offered through the public Marketplace.4 Such limited "wraparound" benefits are considered "excepted benefits," which means they are not be subject to the Affordable Care Act’s group health plan mandates, such as the prohibition on annual dollar limits.
This Update discusses limited wraparound coverage. It concludes with a section on the implications for employers.
Employers may only provide limited wraparound benefits under a pilot program, with a sunset date. The limited wraparound coverage must first be offered between January 1, 2016 and December 31, 2018,5 and must end on the later of the following dates:
Either type of limited wraparound benefits must meet the following requirements:
This type of limited wraparound coverage can only be offered to employees who are not full-time employees (and their dependents) or to pre-Medicare retirees (and their dependents). Full-time employees are those who are reasonably expected to work for one employer for at least an average of 30 hours per week. These rules do not affect Medicare-eligible retirees who are already permitted to purchase Medicare supplemental coverage policies.
Limited wraparound coverage for part-time employees or retirees must satisfy the following conditions:
Somewhat different rules apply to plans that provide wrap benefits to full-time employees (or to part-time employees or retirees) enrolled in a multi-state plan. Certain requirements are specific to the multi-state wrap, including:
The requirement to offer other group coverage (discussed in the previous section) does not apply.
Receiving wraparound coverage would not disqualify an employee or retiree from enrolling in a Marketplace plan and receiving a premium assistance tax credit. As a result, the limited wraparound benefit opens a new possibility for employers with low-wage part-time or seasonal workers who cannot afford to extend unlimited existing group health plan coverage to this subset of their workforce. The economic ramifications of such a design would have to be carefully considered. Employers considering the multi-state wrap would also need to consider their potential exposure to the employer shared responsibility penalty. This is because this wraparound coverage could be offered to full-time employees, and their receipt of a premium assistance tax credit could trigger the employer penalty.
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.
2 The final rule was published in the March 18, 2015 Federal Register.
Update is Sibson Consulting’s electronic newsletter summarizing compliance news. Update is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.
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Sibson Consulting is a member of The Segal Group (www.segalgroup.net) which on October 15, 2014 celebrated its 75th anniversary of its founding by Martin E. Segal.
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