On February 13, 2015, the Departments of Labor, Health and Human Services, and the Treasury (the “Departments”) issued Part XXIII of their FAQs about ACA implementation. ¹ This FAQ addresses the confusion about whether supplemental health insurance products that provide a single benefit qualify as excepted benefits, which are excluded from the ACA’s requirements. While there are four types of excepted benefits, ² the Departments address only one: Q: Can health insurance coverage that supplements group health coverage by providing additional categories of benefits, be characterized as supplemental excepted benefits?
The Departments’ prior guidance defined supplemental excepted benefits as those:
1.“Provided under a separate policy, certificate, or contract of insurance,” and
2. Provided as supplemental coverage by Medicare (Medigap) or Tricare, or are “similar” supplemental coverage provided to coverage under a group health plan.
The answer to the FAQ’s question—“It depends”—hinges on determining what counts as “similar supplemental coverage”. To be considered similar to Medigap or Tricare, coverage must meet four criteria:
It must be issued by an entity other than the one providing primary coverage under the plan.
It must “be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.”
Its cost must not exceed 15% of the primary coverage’s cost.
If sold in the group insurance market, it must not treat individuals or their dependents differently based on health factors.
These criteria were published previous to February 2015. The FAQ Part XXIII adds that the Departments intend to propose a new regulation. This regulation would preclude coverage offering any benefit that is an essential health benefit (EHB) in the State where it is marketed from qualifying as supplemental excepted benefits. Any coverage that includes one or more EHBs is not designed to “fill in the gaps” of primary coverage, according to the proposed regulation. You can read the full FAQ here.
Until the proposed regulations are finalized, “the Departments will not initiate an enforcement action if an issuer of group or individual health insurance coverage fails to comply with the provisions of the PHS Act, ERISA, and the Code, as amended by the Affordable Care Act, with respect to health insurance coverage that (1) provides coverage of additional categories of benefits that are not EHB in the applicable State (as opposed to filling in cost-sharing gaps under the primary plan); (2) complies with the applicable regulatory requirements and meets all of the criteria in the existing guidance on “similar supplemental coverage”; and (3) has been filed and approved with the State (as may be required under State law).”
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