Healthcare Reform: Plans Subject to the Affordable Care Act

By | March 3, 2014

Know Your BenefitsThe health care reform law, known as the Affordable Care Act (ACA), makes significant changes to the U.S. health care system, including new coverage requirements, patient protections, and cost limitations. These changes generally apply to group health plans and health insurance issuers, but not to certain “excepted benefits.”

This Legislative Brief provides an overview of the types of plans that are subject to the ACA.

Group Health Plans and Health Insurance Issuers

In general, the ACA’s market reforms apply to group health plans and health insurance issuers offering group or individual health insurance coverage.

Generally, a plan is a group health plan if it provides health care and is maintained by an employer. Most employer-provided group health arrangements (whether insured or self-funded) will be group health plans for purposes of the ACA.

A “health insurance issuer” is an insurance company, insurance service or insurance organization, including a health maintenance organization (HMO), that is licensed to engage in the insurance business in a state and is subject to state insurance law.

“Health insurance coverage” means benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise, and including items and services paid for as medical care) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer.

  • Exemption for Group Health Plans with fewer than Two Current Employees

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) includes an exemption for plans with fewer than two participants who are current employees (including retiree-only plans that cover fewer than two participants who are current employees). The Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (the Departments) have confirmed that this HIPAA provision also exempts these plans from the ACA’s market reforms.

Accordingly, under the terms of these statutory provisions, group health plans that do not cover at least two employees who are current employees (such as plans in which only retirees participate) are exempt from the Affordable Care Act’s market reform requirements.

  • Excepted Benefits

HIPAA established certain categories of “excepted benefits” that generally are not governed by the HIPAA portability regulations. Employee benefits that qualify as excepted benefits under HIPAA are also not subject to the market reforms under the ACA, including the ACA’s prohibition on annual limits and preventive care coverage requirement.

The current HIPAA regulations establish the following four categories of excepted benefits. The benefits in the first category are excepted in all circumstances. In contrast, the benefits in the second, third and fourth categories are excepted only if certain conditions are met.

  • Benefits That Are Generally Not Health Coverage

The first category includes benefits that are generally not health coverage, such as:

  • Coverage only for accident (including accidental death and dismemberment);
  • Disability income coverage;
  • Liability insurance, including general liability insurance and automobile liability insurance;
  • Coverage issued as a supplement to liability insurance;
  • Workers’ compensation or similar coverage;
  • Automobile medical payment insurance;
  • Credit-only insurance (for example, mortgage insurance); and
  • Coverage for on-site medical clinics.

 

  1. Limited Excepted Benefits

The second category of excepted benefits is limited excepted benefits, which may include limited-scope vision or dental benefits as well as benefits for long-term care, nursing home care, home health care or community-based care. In general, these limited benefits qualify as excepted benefits 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 set forth in the 2004 final HIPAA portability regulations, benefits are deemed not to be an integral part of a group health plan (whether benefits are provided through the same plan or a separate plan) only if the following two requirements are satisfied:

  • Participants must have the right to elect not to receive coverage for the benefits; and
  • If the participant elects to receive coverage for the benefits, the participant must pay an additional premium or contribution for that coverage.

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

On Dec. 20, 2013, the Departments issued proposed regulations that would amend the limited excepted benefits category. The proposed regulations would expand limited excepted benefits by:

  • Allowing self-insured plans to cover dental and vision benefits as excepted benefits without an extra premium payment;
  • Permitting limited group wraparound coverage of individual coverage as excepted benefits; and
  • Recognizing certain EAPs as excepted benefits.

Health Flexible Spending Arrangements (FSAs)

Benefits provided under a health flexible spending arrangement (health FSA) may also qualify as limited excepted benefits in certain circumstances. Health FSAs qualify as excepted benefits if they satisfy the availability AND maximum benefit requirements, as follows.

  • Availability Requirement—Other non-excepted group health plan coverage (for example, coverage under a major medical group health plan) must be made available for the year to the class of participants by reason of their employment.
  • Maximum Benefit Requirement—The maximum benefit payable under the health FSA to any participant for a year cannot exceed the greater of:
    • Two times the participant’s salary reduction election under the health FSA for the year; or
    • The amount of the participant’s salary reduction election for the health FSA for the year, plus $500.

 

  • Non-coordinated Excepted Benefits

The third category of excepted benefits, referred to as “non-coordinated excepted benefits,” includes both coverage for only a specified disease or illness (such as cancer-only policies) and hospital indemnity or other fixed indemnity insurance. To qualify as excepted benefits, a hospital indemnity or other fixed indemnity insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or illness regardless of the amount of expense incurred.

To be exempt under the non-coordinated excepted benefits category, benefits must:

  • Be provided under a separate policy, certificate or contract of insurance;
  • Not contain any coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and
  • Be paid with respect to an event, without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor.

On Jan. 9, 2014, the Departments issued an FAQ addressing whether fixed indemnity insurance may be considered an excepted benefit. With respect to group health insurance coverage that does not meet the definition of fixed indemnity excepted benefits (because it provides benefits other than on a per-period basis), coverage that supplements other group health plan coverage may, nonetheless, qualify as supplemental excepted benefits.

Furthermore, HHS intends to propose amendments to the regulations that would allow fixed indemnity coverage sold in the individual health insurance market to be considered to be an excepted benefit if it meets the following conditions:

  • It is sold only to individuals who have other health coverage that is minimum essential coverage;
  • There is no coordination between the provision of benefits and an exclusion of benefits under any other health coverage;
  • The benefits are paid in a fixed dollar amount regardless of the amount of expenses incurred and without regard to the amount of benefits provided with respect to an event or service under any other health coverage; and
  • A notice is displayed prominently in the plan materials informing policyholders that the coverage does not meet the definition of minimum essential coverage and will not satisfy the ACA’s individual mandate requirements.

If these proposed revisions are implemented, fixed indemnity insurance in the individual market would no longer have to pay benefits solely on a per-period basis to qualify as an excepted benefit.

Until HHS finalizes this rulemaking related to these proposed amendments, HHS will treat fixed indemnity coverage in the individual market as excepted benefits for enforcement purposes if it meets the conditions above in states where HHS has direct enforcement authority. For states with primary enforcement authority, HHS encourages those states to also treat this coverage as an excepted benefit and will not consider that a state is not substantially enforcing the individual market requirements merely because it does so.

  • Supplemental Excepted Benefits

The fourth category of excepted benefits is supplemental excepted benefits. These benefits must be supplemental to Medicare or CHAMPVA/TRICARE coverage (or similar coverage that is supplemental to coverage provided under a group health plan) and provided under a separate policy, certificate or contract of insurance.

To qualify as “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.

  • Expatriate Health Plans

On March 8, 2013, the Departments issued an FAQ that provides transition relief for expatriate health plans with respect to certain ACA provisions.

For purposes of this temporary transitional relief, an expatriate health plan is an insured group health plan with respect to which enrollment is limited to primary insureds who reside outside of their home country for at least six months of the plan year and any covered dependents, and the plan’s associated group health insurance coverage. Coverage provided under an expatriate group health plan is considered a form of minimum essential coverage.

According to the FAQ, for expatriate plans with plan years ending on or before Dec. 31, 2015, the Departments will consider the requirements of subtitles A and C of Title I of the ACA satisfied if the plan and issuer comply with:

  • The pre-ACA version of Title XXVII of the Public Health Service Act (PHS Act); and
  • Other applicable law under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (Code) including, for example:
    • The mental health parity provisions;
    • The HIPAA nondiscrimination provisions;
    • The ERISA section 503 requirements for claims procedures; and
    • Any reporting and disclosure obligations under ERISA Part 1.

In a separate set of FAQs, the Departments announced a limited non-enforcement policy for expatriate plans with respect to the summary of benefits and coverage (SBC) requirement. They acknowledged that expatriate plans may experience administrative challenges and costs in preparing SBCs (for example, due to distinct benefits and claims systems). As a result, the Departments stated that they will not take any enforcement action against a group health plan or group health insurance issuer for failing to provide an SBC with respect to expatriate coverage during the first year that the SBC requirement applies.

Plans Subject to the Affordable Care Act


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