The rule proposes two pilot programs for wraparound coverage. One pilot would allow wraparound benefits only for multi-state plans in the health insurance marketplace. The other would allow wraparound benefits for part-time workers who could otherwise qualify for a flexible savings arrangement who enroll in an individual market plan.
In December 2014, the U.S. Departments of Labor, Health and Human Services and Treasury issued proposed rules that would allow employers to offer limited “wraparound” plans. This would give employees access to high-level benefits, even if they would lack generous employer-based benefits otherwise.
Why Are These Pilot Programs Necessary?
Many health regulations, including HIPAA (the Health Insurance Portability and Accountability Act), Mental Health Parity Act and the Affordable Care Act (ACA) apply to most group health insurance plans. While intended to protect participants’ rights, these regulations impose additional burdens on plan sponsors and others.
All these laws exempt certain types of health benefits. “Excepted benefits” typically fall into one of the following categories: 1) they are not considered health coverage—such as vision, dental or long-term care plans; 2) they are offered separately or are not an integral part of the primary health plan; or 3) they are not coordinated with benefits under another group health plan. Excepted benefits can include limited-scope vision and dental plans, employee assistance programs (EAPs), long-term care insurance and certain indemnity-type medical plans that cover specified diseases and provide benefits according to a schedule.
Some employers have asked whether certain limited benefits that “wrap around’’ a part-time or retired employee’s primary health plan could qualify as an excepted benefit. This would allow employers to offer health benefits without running into the Affordable Care Act’s affordability standards. These require a health plan offered to employees to provide certain minimum essential benefits and be “affordable.” Even for employers that do offer coverage to part-timers*, the employee contribution might be too high to be considered affordable under the law. This could lead to penalties on the employer for violating the ACA.
For employers, having wraparound plans designated as an “excepted benefit” means they will not have to worry that their part-timers and retirees can’t afford their group medical coverage. The ACA’s affordability standard applies only to group health plans, so employers wouldn’t be subject to possible fines. With a wraparound plan, their employees can get basic bronze-level individual coverage in the health insurance exchange and still enjoy robust benefits thanks to the wraparound. They can even get subsidies for their coverage, if they qualify.
Making wraparound plans available would create a win-win situation. Part-time employees and early retirees who do not qualify for Medicare could buy their primary health coverage through the health insurance marketplace. If their income qualifies, they could obtain subsidies. The wraparound plan would then offer additional benefits to bring their coverage closer to the level of coverage that full-time employees receive under the employer group plan.
What Type of Benefits Would a Wraparound Plan Offer?
To be eligible for consideration, a wraparound plan must offer “meaningful benefits beyond coverage of cost sharing.” That could include:
- Expanded network of providers
- Benefits not covered by the individual health plan and not included on the list of “essential health benefits” that ACA-compliant plans must cover.
A wraparound plan cannot discriminate in favor of highly compensated employees. It also cannot impose any pre-existing condition exclusions. And it must not wrap around a grandfathered plan, or plan that provides only excepted benefits. Employees who have a wraparound plan would not be eligible to participate in an excepted health flexible sharing account (FSA).
Wraparound coverage offers potential for smaller employers and employers with part-time workers.