Question: Which common employer-sponsored group health plans qualify as “excepted benefits” for ACA and HIPAA purposes?

Short Answer: Most employer-sponsored dental, vision, health FSA, and EAP plans are excepted benefits that are not subject to certain ACA and HIPAA requirements.

Significance of Excepted Benefit Status

Excepted benefits are not subject to the ACA market reform requirements or the HIPAA portability requirements.

Examples of ACA Market Reform Provisions Not Applicable to Excepted Benefits:

• Lifetime and annual dollar limits on essential health benefits;

• Enhanced appeals and external review process;

• Child coverage to age 26;

• Primary care physician designation (patient protections);

• Free preventive health services (without cost-sharing);

• Prohibition of rescissions;

• Summary of benefits and coverage (SBCs)

• Coverage for routine patient costs for items and services in connection with clinical trials;

• 90-day waiting period limitation;

• Guaranteed availability and renewability of coverage;

• Prohibition on preexisting condition

Important Note: Excepted benefits do not qualify as an offer of coverage for ACA employer mandate purposes because they are not minimum essential coverage (MEC) and therefore do not qualify as an “eligible employer-sponsored plan.”  See our full guide for more details: Newfront ACA Employer Mandate Pay or Play and ACA Reporting Guide.

Examples of HIPAA Portability Provisions Not Applicable to Excepted Benefits:

• Special enrollment events;

• Nondiscrimination based on health status;

• Pre-existing condition exclusion limitations (eliminated in 2014);

• Notices of creditable coverage (eliminated in 2014).

Important Note: Excepted benefits are subject to the HIPAA privacy and security rules.  See our full training for more details: Newfront Office Hours Webinar: HIPAA Training for Employers.

Common Excepted Benefit #1: Dental Plan

Fully Insured Dental Plan Excepted Benefit Status:

• Limited Scope: Substantially all benefits are for treatment of the mouth (including any organ or structure within the mouth); and

• Separate Policy: Dental benefits are provided under a separate dental policy, certificate, or contract of insurance.

Note: Self-insured dental plans cannot meet this test.

Self-Insured Dental Plan Excepted Benefit Status:

• Limited Scope: Substantially all benefits are for treatment of the mouth (including any organ or structure within the mouth); and

• Not Integral to Group Health Plan: At least one of the following two conditions is satisfied:

1. Participants May Decline Coverage: Employees must be permitted to decline (i.e., waive, opt-out from) the dental plan, regardless of whether there is an employee contribution required for the coverage; or

2. Separate Claims Administration Contract: The employer has entered into a contract with a TPA to administer the dental plan benefit claims that is separate from any contract with a TPA for claims administration of any other group health plan benefits.

Note: Although not common, fully insured dental plans also may meet this “not integral” approach for excepted benefit status if they do not satisfy the “separate policy” approach.

Common Excepted Benefit #2: Vision Plan

Fully Insured Vision Plan Excepted Benefit Status:

• Limited Scope: Substantially all benefits are for treatment of the eye; and

• Separate Policy: Vision benefits are provided under a separate vision policy, certificate, or contract of insurance.

Note: Self-insured vision plans cannot meet this test.

Self-Insured Vision Plan Excepted Benefit Status:

• Limited Scope: Substantially all benefits are for treatment of the eye; and

• Not Integral to Group Health Plan: At least one of the following two conditions is satisfied:

1. Participants May Decline Coverage: Employees must be permitted to decline (i.e., waive, opt-out from) the vision plan, regardless of whether there is an employee contribution required for the coverage; or

2. Separate Claims Administration Contract: The employer has entered into a contract with a TPA to administer the vision plan benefit claims that is separate from any contract with a TPA for claims administration of any other group health plan benefits.

Note: Although not common, fully insured vision plans also may meet this “not integral” approach for excepted benefit status if they do not satisfy the “separate policy” approach.

Common Excepted Benefit #3: Health FSA

Health FSAs must qualify as an excepted benefit to avoid violating the ACA market reform provisions.

The general requirements for a health FSA to be considered an excepted benefit are:

• The Footprint Rule: All employees eligible for the health FSA must also be eligible for the major medical plan; and

• The $500 Rule: Employer nonelective contributions to the health FSA cannot exceed $500.

Under the footprint rule, all employees eligible for the health FSA must also be eligible for (regardless of enrollment in) the major medical plan. In other words, the health FSA eligibility “footprint” cannot be broader than the major medical plan’s eligibility “footprint.”  For more details, see our prior post: The Health FSA Eligibility Footprint Rule.

The $500 rule typically is not an issue because most employers do not make employer contributions to the health FSA. Those employers that do contribute to the health FSA generally will have to limit that employer health FSA contribution to no more than $500 to preserve the plan’s excepted benefit status.

Employers wishing to contribute in excess of $500 to the health FSA can generally do so only if the structure the employer contribution as a matching contribution. This is because the health FSA “maximum benefit” rule technically prohibits employers from contributing any amount that exceeds two times the employee’s salary reduction election (or, if greater, $500 plus the employee’s salary reduction election).

Additional Notes:

• Employer health FSA contributions do not count toward the $2,750 (2020) health FSA salary reduction contribution limit.  Therefore, where an employer contributes $500 to the health FSA, the maximum health FSA amount per plan year for an employee will be $2,750 (max employee salary contribution) + $500 (max nonelective employer contribution) = $3,250.  For more details, see our prior post: 2020 Health FSA Limit Increased to $2,750.

• The distinction between an employee and employer contribution is a more nuanced analysis where the employer offers flex credits.  A health FSA contribution is considered an employee contribution if the employee had the option to receive the funds as taxable cash, but instead chose to contribute the funds pre-tax (through the Section 125 cafeteria plan) to the health FSA.  This means that a cashable employer flex credit allocated to the health FSA is considered an employee contribution, whereas a non-cashable employer flex credit is considered an employer contribution.  For more details, see our prior post: How the ACA Affects Flex Credits.

Common Excepted Benefit #4: EAP

EAPs must satisfy all of the following conditions to qualify as an excepted benefit:

1. Not Significant Medical Benefits: The EAP cannot provide significant benefits in the nature of medical care;

2. No Coordination with Group Health Plan: The EAP cannot be coordinated with benefits under another group health plan by meeting the following two requirements:- No Exhaustion: Participants in the other group health plan cannot be required to use and exhaust benefits under the EAP (i.e., the EAP cannot act as a gatekeeper) before becoming eligible for benefits under the other group health plan; and- No Participation Link: Participant eligibility for benefits under the EAP cannot be dependent on participation in another group health plan;

3. No Premiums: The EAP cannot have an employee-share of the premium (i.e., it must be fully employer-paid); and

4. No Cost-Sharing: The EAP cannot have any cost-sharing for its services (i.e., no deductibles, copays, or coinsurance).

The most difficult element to interpret is the first requirement that the EAP not provide “significant benefits in the nature of medical care.”  For example, there is no specific limit on the number of counseling sessions that the EAP can offer and still remain within this definition.  The only guidance in the regulations is a generic statement that employers are to take into account “the amount, scope, and duration of covered services.”

The best description of this “significant medical benefits” condition comes from the preamble to the excepted benefits regulations, which provides as follows:

The first requirement of…these final regulations is that the EAP does not provide significant benefits in the nature of medical care. For this purpose, the amount, scope, and duration of covered services are taken into account. For example, an EAP that provides only limited, short-term outpatient counseling for substance use disorder services (without covering inpatient, residential, partial residential or intensive outpatient care) without requiring prior authorization or review for medical necessity does not provide significant benefits in the nature of medical care. At the same time, a program that provides disease management services (such as laboratory testing, counseling, and prescription drugs) for individuals with chronic conditions, such as diabetes, does provide significant benefits in the nature of medical care.

The preamble subsequently notes that the Departments (DOL/IRS/HHS) may provide additional guidance in the future to better clarify when a program provides significant benefits in the nature of medical care.

Regulations

29 CFR §2590.732(c)(3):

(3)  Limited excepted benefits.

(i)   In general. Limited-scope dental benefits, limited-scope vision benefits, or long-term care benefits are excepted if they are provided under a separate policy, certificate, or contract of insurance, or are otherwise not an integral part of a group health plan as described in paragraph (c)(3)(ii) of this section. In addition, benefits provided under a health flexible spending arrangement (health FSA) are excepted benefits if they satisfy the requirements of paragraph (c)(3)(v) of this section; benefits provided under an employee assistance program are excepted benefits if they satisfy the requirements of paragraph (c)(3)(vi) of this section; benefits provided under limited wraparound coverage are excepted benefits if they satisfy the requirements of paragraph (c)(3)(vii) of this section; and benefits provided under a health reimbursement arrangement or other account-based group health plan, other than a health FSA, are excepted benefits if they satisfy the requirements of paragraph (c)(3)(viii) of this section.

(ii)   Not an integral part of a group health plan. For purposes of this paragraph (c)(3), benefits are not an integral part of a group health plan (whether the benefits are provided through the same plan, a separate plan, or as the only plan offered to participants) if either paragraph (c)(3)(ii)(A) or (B) are satisfied.

(A)   Participants may decline coverage. For example, a participant may decline coverage if the participant can opt out of the coverage upon request, whether or not there is a participant contribution required for the coverage.

(B)   Claims for the benefits are administered under a contract separate from claims administration for any other benefits under the plan.

(iii)   Limited scope.

(A)   Dental benefits. Limited scope dental benefits are benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth).

(B)   Vision benefits. Limited scope vision benefits are benefits substantially all of which are for treatment of the eye.

…

(v)   Health flexible spending arrangements. Benefits provided under a health flexible spending arrangement (as defined in section 106(c)(2) of the Internal Revenue Code) are excepted for a class of participants only if they satisfy the following two requirements—

(A)   Other group health plan coverage, not limited to excepted benefits, is made available for the year to the class of participants by reason of their employment; and

(B)   The arrangement is structured so that the maximum benefit payable to any participant in the class for a year cannot exceed two times the participant’s salary reduction election under the arrangement for the year (or, if greater, cannot exceed 00 plus the amount of the participant’s salary reduction election). For this purpose, any amount that an employee can elect to receive as taxable income but elects to apply to the health flexible spending arrangement is considered a salary reduction election (regardless of whether the amount is characterized as salary or as a credit under the arrangement).

(vi)   Employee assistance programs. Benefits provided under employee assistance programs are excepted if they satisfy all of the requirements of this paragraph (c)(3)(vi).

(A)   The program does not provide significant benefits in the nature of medical care. For this purpose, the amount, scope and duration of covered services are taken into account.

(B)   The benefits under the employee assistance program are not coordinated with benefits under another group health plan, as follows:

(1)   Participants in the other group health plan must not be required to use and exhaust benefits under the employee assistance program (making the employee assistance program a gatekeeper) before an individual is eligible for benefits under the other group health plan; and

(2)   Participant eligibility for benefits under the employee assistance program must not be dependent on participation in another group health plan.

(C)   No employee premiums or contributions are required as a condition of participation in the employee assistance program.

(D)   There is no cost sharing under the employee assistance program.

79 Fed Reg. 59130 (Oct. 1, 2014):

https://www.govinfo.gov/content/pkg/FR-2014-10-01/pdf/2014-23323.pdf

Under the HIPAA regulations, vision and dental benefits are excepted if they are limited in scope (described as benefits, substantially all of which are for treatment of the eyes or mouth, respectively) and are either: (1) Provided under a separate policy, certificate, or contract of insurance; or (2) are otherwise not an integral part of a group health plan. While only insured coverage may qualify under the first test, both insured and self-insured coverage may qualify under the second test.

…

The first requirement of the 2013 proposed regulations and these final regulations is that the EAP does not provide significant benefits in the nature of medical care. For this purpose, the amount, scope, and duration of covered services are taken into account. For example, an EAP that provides only limited, short-term outpatient counseling for substance use disorder services (without covering inpatient, residential, partial residential or intensive outpatient care) without requiring prior authorization or review for medical necessity does not provide significant benefits in the nature of medical care. At the same time, a program that provides disease management services (such as laboratory testing, counseling, and prescription drugs) for individuals with chronic conditions, such as diabetes, does provide significant benefits in the nature of medical care.