Federal Proposal Amends Excepted Benefits Definition & Large Group Determination of EHBs

June 2016

Federal Proposal Amends Excepted Benefits Definition & Large Group Determination of EHBs

The following is a closer look at the Department of Labor (DOL), Internal Revenue Service (IRS) and Health and Human Services (HHS) proposed rule on “Expatriate Health Plans, Expatriate Health Plan Issuers, and Qualified Expatriates; Excepted Benefits; Lifetime and Annual Limits; and ShortTerm, Limited-Duration Insurance.” The proposed rule would revise excepted benefits definitions, but based on our reading, does not appear to amend the sections applicable to standalone dental plan benefits. Also, the proposed rule would clarify how large group health plans determine what are Essential Health Benefits (EHBs) for purposes of compliance with the ACA prohibition on lifetime and annual limits.

Excepted Benefits
The definition of excepted benefits appears in several sections of federal regulation (CFR) including at 26 CFR § 54.9831-1 (IRS), 29 CFR § 2590.732 (DOL) and 45 CFR § 146.145 (HHS). In each, excepted benefits are described in four categories including:

1. Benefits excepted in all circumstances
2. Limited excepted benefits (limited-scope dental benefits are included here, which is not amended by the proposed rule)
3. Non-coordinated benefits
4. Supplemental benefits

The proposed rule offers amendments to excepted benefits definitions #3 and #4, motivated by similar concerns CMS addressed above regarding short-term coverage.

Regarding #3, the preamble to the proposed rule highlights the Departments’ concern about misrepresentation of hospital indemnity and other fixed indemnity insurance: “The Departments are concerned that some individuals may incorrectly understand these policies to be comprehensive major medical coverage that would be considered minimum essential coverage.”

For this, the Departments proposes two clarifications:

• fixed-dollar indemnity group coverage must pay a fixed amount per day or other time period of service without regard to the cost of the service or the type of items or services provided.
• fixed-dollar indemnity coverage must include in application, enrollment and reenrollment materials a warning that the coverage is not major medical coverage and is not minimum essential coverage for purposes of the individual responsibility requirement. 

The Departments propose this notice for these plans (and a similar one is proposed for short-term plans): ‘‘THIS IS A SUPPLEMENT TO HEALTH INSURANCE AND IS NOT A SUBSTITUTE FOR MAJOR MEDICAL COVERAGE. THIS IS NOT QUALIFYING HEALTH COVERAGE (‘‘MINIMUM ESSENTIAL COVERAGE’’) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.’’

Regarding #4, and in order to be considered supplemental, a plan must supplement Medicare or TRICARE, or be “similar supplemental coverage provided to coverage under a group health plan.” Under current rules, to be similar supplemental coverage, the coverage must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles. Similar supplemental coverage does not include coverage that becomes secondary or supplemental only under a coordination-of-benefits provision.

Under the proposed regulations, if supplemental health insurance coverage provides benefits for items and services not covered by the primary coverage, the coverage would be considered to be designed “to fill gaps in primary coverage,” for purposes of being “supplemental excepted benefits” if none of the benefits provided by the supplemental policy are an EHB.

The following are proposed amendments:

(5)Supplemental benefits. 

(i) The following benefits are excepted only if they are provided under a separate policy, certificate, or contract of insurance—

(A) Medicare supplemental health insurance (as defined under section 1882(g)(1) of the Social Security Act; also known as Medigap or MedSupp insurance);

(B) Coverage supplemental to the coverage provided under Chapter 55, Title 10 of the United States Code (also known as TRICARE supplemental programs); and

(C) Similar supplemental coverage provided to coverage under a group health plan. To be similar supplemental coverage, the coverage must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles. Similar supplemental coverage does not include coverage that becomes secondary or supplemental only under a coordination-of-benefits provision.

NEW: 

(C) Similar supplemental coverage provided to coverage under a group health plan. To be similar supplemental coverage, the coverage must be specifically designed to fill gaps in the primary coverage. The preceding sentence is satisfied if the coverage is designed to fill gaps in cost sharing in the primary coverage, such as coinsurance or deductibles, or the coverage is designed to provide benefits for items and services not covered by the primary coverage and that are not essential health benefits in the State where the coverage is issued, or the coverage is designed to both fill such gaps in cost sharing under, and cover such benefits not covered by, the primary coverage. Similar supplemental coverage does not include coverage that becomes secondary or supplemental only under a coordination-of-benefits provision.

Large Group Determination of EHBs
While self-insured, large group market, and grandfathered health plans are not required to offer EHB, Public Health Service Act (PHS) section 2711 prohibits such plans from imposing annual and lifetime dollar limits on covered benefits that fall within the definition of EHB. This would include any embedded essential pediatric dental services.

Final Rules issued in November 2015 required these plans (which are not required to provide EHBs) to define EHB for purposes of the lifetime and annual dollar limits prohibition. The 2015 rules refer to selecting a base-benchmark plan, as specified under 45 CFR 156.100, for purposes of determining EHBs. In the current proposed rules, however, the Departments note that a base-benchmark plan selected by a State or applied by default under 45 CFR 156.100 may not reflect the complete definition of EHB in a given state.

The following are proposed amendments: 

54.9815–2711 No lifetime or annual limits.

(c) Definition of essential health benefits. The term “essential health benefits” means essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act and applicable regulations. For this purpose, a group health plan or a health insurance issuer that is not required to provide essential health benefits under section 1302(b) must define “essential health benefits” in a manner consistent with one of the three Federal Employees Health Benefit Program (FEHBP) options as defined by 45 CFR 156.100(a)(3) or one of the base-benchmark plans selected by a State or applied by default pursuant to 45 CFR 156.100.

NEW:

 (c) Definition of essential health benefits. The term ‘‘essential health benefits’’ means essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act and applicable regulations. For this purpose, a group health plan or a health insurance issuer that is not required to provide essential health benefits under section 1302(b) must define ‘‘essential health benefits’’ in a manner that is consistent with—

(1) One of the EHB-benchmark plans applicable in a State under 45 CFR 156.110, and includes coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2); or

(2) One of the three Federal Employees Health Benefit Program (FEHBP) options as defined by 45 CFR 156.100(a)(3), supplemented, as necessary, to meet the standards in 45 CFR 156.110.

Resources
NADP tracks and links to all federal, ACA-related regulations in the “ACA Regulations & Guidance Grid” available on the members-only Advocacy Resources webpage.