EBSA Proposed Rules

Amendments to Excepted Benefits   [12/24/2013]
[PDF]
Federal Register, Volume 78 Issue 247 (Tuesday, December 24, 2013)
[Federal Register Volume 78, Number 247 (Tuesday, December 24, 2013)]
[Proposed Rules]
[Pages 77632-77642]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30553]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG-143172-13]
RIN 1545-BL90

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB60

DEPARTMENT OF HEALTH AND HUMAN SERVICES

[CMS-9946-P]

45 CFR Part 146

RIN 0938-AS16


Amendments to Excepted Benefits

AGENCY: Internal Revenue Service, Department of the Treasury; Employee 
Benefits Security Administration, Department of Labor; Centers for 
Medicare & Medicaid Services, Department of Health and Human Services.

ACTION: Proposed rules.

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SUMMARY: This document contains proposed rules that would amend the 
regulations regarding excepted benefits under the Employee Retirement 
Income Security Act of 1974, the Internal Revenue Code, and the Public 
Health Service Act. Excepted benefits are generally exempt from the 
health reform requirements that were added to those laws by the Health 
Insurance Portability and Accountability Act and the Patient Protection 
and Affordable Care Act.

DATES: Comments are due on or before February 24, 2014.

ADDRESSES: Written comments may be submitted to the Department of Labor 
as specified below. Any comment that is submitted will be shared with 
the other Departments and will also be made available to the public. 
Warning: Do not include any personally identifiable information (such 
as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines. No deletions, modifications, or redactions 
will be made to the comments received, as they are public records. 
Comments may be submitted anonymously.
    Comments, identified by ``Excepted Benefits,'' may be submitted by 
one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail or Hand Delivery: Office of Health Plan Standards and 
Compliance Assistance, Employee Benefits Security Administration, Room 
N-5653, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210, Attention: Excepted Benefits.
    Comments received will be posted without change to 
www.regulations.gov and available for public inspection at the Public 
Disclosure Room, N-1513, Employee Benefits Security Administration, 200 
Constitution Avenue NW., Washington, DC 20210, including any personal 
information provided.

FOR FURTHER INFORMATION CONTACT: Amy Turner or Beth Baum, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the 
Treasury, at (202) 317-5500; Jacob Ackerman, Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, at (410) 
786-1565.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws, may call the EBSA Toll-Free Hotline at 1-866-444-
EBSA (3272) or visit the Department of Labor's Web site (http://www.dol.gov/ebsa). In addition, information from HHS on private health 
insurance for consumers can be found on the Centers for Medicare & 
Medicaid Services (CMS)

[[Page 77633]]

Web site (www.cms.gov/cciio) and information on health reform can be 
found at www.HealthCare.gov.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Health Insurance Portability and Accountability Act of 1996 
(HIPAA), Public Law 104-191, 110 Stat. 1936 added title XXVII of the 
Public Health Service Act (PHS Act), part 7 of the Employee Retirement 
Income Security Act of 1974 (ERISA), and chapter 100 of the Internal 
Revenue Code (the Code), providing portability and nondiscrimination 
provisions with respect to health coverage. These provisions of the PHS 
Act, ERISA, and the Code were later augmented by other consumer 
protection laws, including the Mental Health Parity Act of 1996,\1\ the 
Mental Health Parity and Addiction Equity Act of 2008,\2\ the Newborns' 
and Mothers' Health Protection Act,\3\ the Women's Health and Cancer 
Rights Act,\4\ the Genetic Information Nondiscrimination Act of 
2008,\5\ the Children's Health Insurance Program Reauthorization Act of 
2009,\6\ Michelle's Law,\7\ and the Affordable Care Act.\8\
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    \1\ Public Law 104-204, 110 Stat. 2944 (September 26, 1996).
    \2\ Public Law 110-343, 122 Stat. 3881 (October 3, 2008).
    \3\ Public Law 104-204, 110 Stat. 2935 (September 26, 1996).
    \4\ Public Law 105-277, 112 Stat. 2681-436 (October 21, 1998).
    \5\ Public Law 110-233, 122 Stat. 881 (May 21, 2008).
    \6\ Public Law 111-3, 123 Stat. 65 (February 4, 2009).
    \7\ Public Law 110-381, 122 Stat. 4081 (October 9, 2008).
    \8\ The Patient Protection and Affordable Care Act, Public Law 
111-148, was enacted on March 23, 2010, and the Health Care and 
Education Reconciliation Act, Public Law 111-152, was enacted on 
March 30, 2010. (They are collectively known as the ``Affordable 
Care Act''.)
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    The Affordable Care Act reorganizes, amends, and adds to the 
provisions of part A of title XXVII of the PHS Act relating to group 
health plans and health insurance issuers in the group and individual 
markets. The term ``group health plan'' includes both insured and self-
insured group health plans.\9\ Section 715(a)(1) of ERISA and section 
9815(a)(1) of the Code, as added by the Affordable Care Act, 
incorporate the provisions of part A of title XXVII of the PHS Act into 
ERISA and the Code to make them applicable to group health plans and 
health insurance issuers providing health insurance coverage in 
connection with group health plans. The PHS Act sections incorporated 
by these references are sections 2701 through 2728.
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    \9\ The term ``group health plan'' is used in title XXVII of the 
PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is 
distinct from the term ``health plan,'' as used in other provisions 
of title I of the Affordable Care Act. The term ``health plan'' does 
not include self-insured group health plans.
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II. Overview of the Proposed Regulations

    Sections 2722 and 2763 of the PHS Act, section 732 of ERISA, and 
section 9831 of the Code provide that the requirements of title XXVII 
of the PHS Act, part 7 of ERISA, and chapter 100 of the Code, 
respectively, generally do not apply to excepted benefits. Excepted 
benefits are described in section 2791 of the PHS Act, section 733 of 
ERISA, and section 9832 of the Code.
    The parallel statutory provisions establish four categories of 
excepted benefits. The first category includes benefits that are 
generally not health coverage \10\ (such as automobile insurance, 
liability insurance, workers compensation, and accidental death and 
dismemberment coverage). The benefits in this category are excepted in 
all circumstances. In contrast, the benefits in the second, third, and 
fourth categories are types of health coverage but are excepted only if 
certain conditions are met.
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    \10\ See 62 FR 16894, 16903 (Apr. 8, 1997), which states that 
these benefits are generally not health insurance coverage).
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    The second category of excepted benefits is limited excepted 
benefits, which may include limited scope vision or dental benefits, 
and benefits for long-term care, nursing home care, home health care, 
or community based care. Section 2791(c)(2)(C) of the PHS Act, section 
733(c)(2)(C) of ERISA, and section 9832(c)(2)(C) of the Code authorize 
the Secretaries of HHS, Labor, and the Treasury (collectively, the 
Secretaries) to issue regulations establishing other, similar limited 
benefits as excepted benefits. The Secretaries exercised this authority 
previously with respect to certain health flexible spending 
arrangements (health FSAs).\11\ To be excepted under this second 
category, the statute provides that limited benefits must either: (1) 
be provided under a separate policy, certificate, or contract of 
insurance; or (2) otherwise not be an integral part of a group health 
plan, whether insured or self-insured.
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    \11\ 26 CFR 54.9831-1(c)(3)(v); 29 CFR 2590.732(c)(3)(v); 45 CFR 
146.145(c)(3)(v).
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    The third category of excepted benefits, referred to as 
``noncoordinated 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. These benefits 
are excepted only if all of the following conditions are met: (1) The 
benefits are provided under a separate policy, certificate, or contract 
of insurance; (2) there is no coordination between the provision of 
such benefits and any exclusion of benefits under any group health plan 
maintained by the same plan sponsor; and (3) the benefits are paid with 
respect to any event without regard to whether benefits are provided 
under any group health plan maintained by the same plan sponsor.\12\
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    \12\ 26 CFR 54.9831-1(c)(4); 29 CFR 2590.732(c)(4); 45 CFR 
146.145(c)(4). See also Q7 in FAQs about Affordable Care Act 
Implementation Part XI, available at http://www.dol.gov/ebsa/faqs/faq-aca11.html.
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    The fourth category of excepted benefits is supplemental excepted 
benefits. Such benefits must be: (1) Coverage supplemental to Medicare, 
coverage supplemental to the Civilian Health and Medical Program of the 
Department of Veterans Affairs (CHAMPVA) or to Tricare, or similar 
coverage that is supplemental to coverage provided under a group health 
plan; and (2) provided under a separate policy, certificate, or 
contract of insurance.\13\
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    \13\ 26 CFR 54.9831-1(c)(5); 29 CFR 2590.732(c)(5); 45 CFR 
146.145(c)(5). The Departments issued additional guidance regarding 
supplemental health insurance coverage as excepted benefits. See 
EBSA Field Assistance Bulletin No. 2007-04 (available at http://www.dol.gov/ebsa/pdf/fab2007-4.pdf); CMS Insurance Standards 
Bulletin 08-01 (available at http://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_08_01_508.pdf); and IRS Notice 2008-23 
(available at http://www.irs.gov/irb/2008-07_IRB/ar09.html).
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    These proposed regulations would amend the second category of 
excepted benefits, limited excepted benefits.

A. Dental and Vision Benefits

    In 2004, the Departments of the Treasury, Labor, and HHS published 
final regulations with respect to excepted benefits (the HIPAA 
regulations).\14\ (Subsequent references to the ``Departments'' include 
all three Departments, unless the headings or context indicate 
otherwise.) 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 HIPAA regulations provided that 
benefits are not an integral part of a plan if participants have the 
right to

[[Page 77634]]

elect not to receive coverage for the benefits, and if participants 
elect to receive coverage for such benefits, they pay an additional 
premium or contribution for it. By contrast, health FSA benefits could 
qualify as excepted benefits without any participant contribution under 
the HIPAA regulations.\15\
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    \14\ 69 FR 78720 (Dec. 30, 2004).
    \15\ Under paragraph (c)(3)(v) of the HIPAA regulations, 
benefits provided under a health FSA are only excepted for a class 
of participants if other group health coverage, not limited to 
excepted benefits, is made available for the year to the class of 
participants; and the arrangement is structured so that the maximum 
benefit payable to any participant in the class for a year does not 
exceed an amount specified in the regulations.
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    Following enactment of the Affordable Care Act, various 
stakeholders asked the Departments to amend the regulations in order to 
remove conditions for limited-scope vision and dental benefits to be 
treated as excepted benefits. Specifically, some employers represented 
that, although their vision and dental benefits complied with the pre-
Affordable Care Act requirements in title XXVII of the PHS Act, part 7 
of ERISA, and chapter 100 of the Code (such as the nondiscrimination 
and preexisting condition exclusion provisions), compliance with the 
Affordable Care Act provisions (including the 90-day waiting period 
limitation \16\ and the prohibition on annual limits) \17\ presented 
additional challenges. These employers argued that, where employers are 
providing such benefits on a self-insured basis and without a 
contribution from employees, employers should not be required to charge 
a nominal contribution from participants simply for the benefits to 
qualify as excepted benefits. In some cases, the cost of collecting the 
nominal contribution would be greater than the contribution itself. 
Moreover, they pointed out that employers providing dental and vision 
benefits through a separate insurance policy are not required to charge 
a participant any premium in order for the dental or vision benefits to 
be considered excepted benefits. Similarly, consumer groups argued 
that, if an employer offers primary group health coverage that is 
unaffordable to individuals, but limited-scope vision or dental 
coverage that is affordable, such limited-scope vision or dental 
coverage should qualify as excepted benefits so as not to make such 
individuals ineligible for the premium tax credit under section 36B of 
the Code for enrolling in coverage through an Affordable Insurance 
Exchange, or ``Exchange'' (also called a Health Insurance Marketplace 
or Marketplace).
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    \16\ See PHS Act section 2708. See also proposed regulations, 
published on March 21, 2013, at 78 FR 17313, stating that ``the 
Departments will consider compliance with these proposed regulations 
as compliance with PHS Act section 2708 at least through the end of 
2014.'' (78 FR at 17317).
    \17\ See PHS Act section 2711 and its implementing regulations 
at 26 CFR 54.9815-2711T, 29 CFR 2590.715-2711, and 45 CFR 147.126.
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    In response to these concerns, and to level the playing field 
between insured and self-insured coverage, these proposed regulations 
would eliminate the requirement under the HIPAA regulations that 
participants pay an additional premium or contribution for limited-
scope vision or dental benefits to qualify as benefits that are not an 
integral part of a plan (and therefore as excepted benefits). The 
Departments invite comments on this approach.

B. Limited Wraparound Coverage

    The Affordable Care Act requires that non-grandfathered health 
plans in the individual and small group markets cover essential health 
benefits (EHB), which include items and services in ten statutorily 
specified categories that are equal in scope to a typical employer 
plan.\18\ Because employer group coverage varies from State to State, 
HHS regulations at 45 CFR 156.100 provide for States to adopt 
individual benchmarks from among a range of primarily small group plan 
offerings in each State to serve as a reference plan, reflecting both 
the scope of services and limits offered by a typical employer plan in 
that State.\19\
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    \18\ For more information on grandfathered health plans, see 
section 1251 of the Affordable Care Act and its implementing 
regulations at 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 45 
CFR 147.140. For more information on essential health benefits, see 
45 CFR 156.110, incorporated into the regulations through 78 FR 
12834, Patient Protection and Affordable Care Act; Standards Related 
to Essential Health Benefits, Actuarial Value, and Accreditation; 
Final Rule, Feb. 25, 2013.
    \19\ 45 CFR 156.100, 78 FR 12840.
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    Prior to the Affordable Care Act, there was no Federal requirement 
that health coverage in the individual and small group market include a 
standardized set of benefits such as those included in EHB. Self-
insured group health plans and health insurance coverage in the large 
group market often cover items and services in addition to the types of 
services included in EHB. For example, items and services that either 
cannot be or are unlikely to be included in EHB include routine adult 
vision and dental care, long-term/custodial nursing home care, non-
medically necessary pediatric orthodontia, and coverage that extends 
beyond the benchmark plan's coverage of wellness programs, manipulative 
treatment, infertility, home health care, private duty nursing, 
hospice, or certain non-traditional treatments. In addition, some of 
these group health plans may provide broader provider networks, in 
terms of the number and types of contracted providers, than those often 
included in the individual and small group market. Federal law is 
designed to encourage employers to provide group coverage for their 
employees.\20\
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    \20\ Section 4980H of the Code generally provides that an 
applicable large employer is subject to an assessable payment if one 
or more full-time employees is certified to the employer as having 
received an applicable premium tax credit or cost-sharing reduction 
and either (1) the employer fails to offer to its full-time 
employees (and their dependents) the opportunity to enroll in 
minimum essential coverage (MEC) under an eligible employer 
sponsored plan, or (2) the employer offers its full-time employees 
(and their dependents) the opportunity to enroll in MEC under an 
eligible employer-sponsored plan but the coverage fails to meet 
requirements for affordability and minimum value. Section 5000A of 
the Code provides that MEC includes group health plans that are 
self-insured or are offered in the large or small group market 
within a State. Under section 5000A, nonexempt individuals must 
either maintain MEC for themselves and any nonexempt family members 
or include an additional payment with their Federal income tax 
return. Section 36B of the Code allows a premium tax credit to 
certain taxpayers who enroll (or whose family members enroll) in a 
qualified health plan (QHP) through an Exchange. The credit 
subsidizes a portion of the premiums for the QHP. In general, the 
premium tax credit may not subsidize coverage for an individual who 
is eligible for other MEC. If the MEC is eligible employer-sponsored 
coverage, however, an individual is treated as eligible for that 
coverage only if the coverage is affordable and provides minimum 
value or if the individual enrolls in the coverage.
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    Experts suggest that most workers who are offered minimum value 
employer-sponsored coverage will not meet the criteria for the premiums 
to be considered to be ``unaffordable'' and thus not qualify for the 
premium tax credit for enrolling in coverage through an Exchange.\21\ 
Nevertheless, in some cases, employer plans may be unaffordable for 
some employees. These individuals might purchase coverage through an 
Exchange with a premium tax credit. While such individuals might pay 
lower premiums for coverage through an Exchange, they might also have 
less generous coverage in terms of benefits or a different provider 
network than they would have had in their group health plan. Some group 
health plan sponsors have asked whether wraparound coverage could be 
provided for employees for whom the employer premium is unaffordable 
and who obtain coverage through an Exchange. This approach would allow 
employers

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to provide such employees with overall coverage that is comparable to 
the group health plan coverage, taking into account both the wraparound 
coverage and the Exchange coverage.
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    \21\ See Congressional Budget Office, CBO and JCT Estimates of 
the Effects of the Affordable Care Act on the Number of People 
Obtaining Employer-Based Insurance, March 2012, at Table 2, 
available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-15-ACA_and_Insurance_2.pdf. See also Carter C. 
Price & Evan Saltzman, Delaying the Employer Mandate, July 2013, 
available at http://www.rand.org/pubs/research_reports/RR411.html.
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    Accordingly, the Departments have developed these proposed 
regulations to treat certain wraparound coverage provided under a group 
health plan as excepted benefits when it is offered to individuals who 
could receive such benefits through their group health plan if they 
could afford the premiums, but who do not enroll in the employer-
sponsored plan because the premium is unaffordable under the law. As 
excepted benefits, the coverage would generally be exempt from the 
HIPAA and Affordable Care Act market reform requirements of ERISA, the 
PHS Act, and the Code. Wraparound coverage would only qualify as 
excepted benefits under limited circumstances in order to alleviate two 
concerns. First, the wraparound coverage could not replace group 
coverage for employers who drop coverage or who otherwise do not offer 
minimum value coverage. Instead, the wraparound coverage would only be 
considered to be an excepted benefit if it is used to provide 
additional coverage to individuals and families enrolled in non-
grandfathered individual health insurance coverage and for whom minimum 
value coverage under the employer's group health plan is offered but is 
unaffordable. Second, the proposed rules aim to prevent plan sponsors 
from structuring wraparound coverage so that low-income workers receive 
fewer primary benefits than high-income workers. These proposed 
regulations are intended to allow a plan sponsor to maintain a 
comparable level of benefits for all potential enrollees, including not 
only high-income workers in their group health plan but also low-income 
workers that enroll in non-grandfathered individual market coverage, 
promoting equity in coverage.
    The proposed regulations, which the Departments are proposing would 
be effective for plan years starting in 2015, describe the 
circumstances under which employer-provided wraparound coverage would 
constitute excepted benefits (limited wraparound coverage) and 
therefore would not disqualify an employee from eligibility for the 
premium tax credit and cost-sharing reductions. The Departments note 
that provision of excepted benefits will not satisfy an applicable 
large employer's responsibilities under section 4980H of the Code. 
Under these proposed regulations, limited wraparound coverage is an 
excepted benefit if five conditions are met.
    First, the coverage can wrap around only certain coverage provided 
through the individual market. Specifically, the individual health 
insurance coverage must be non-grandfathered and cannot consist solely 
of excepted benefits. In States that elect to establish a Basic Health 
Program (BHP), certain low-income individuals (for example, those with 
household income between 133% and 200% of the Federal poverty level) 
who would otherwise qualify for a tax credit to obtain a qualified 
health plan through an Exchange will instead be enrolled in coverage 
through the BHP. Therefore, the Departments invite comments on how an 
employer might make wraparound coverage available to BHP enrollees.
    Second, the limited wraparound coverage must be specifically 
designed to provide benefits beyond those offered by the individual 
health insurance coverage. Specifically, the limited wraparound 
coverage must provide either benefits that are in addition to EHBs, or 
reimburse the cost of health care providers considered out-of-network 
under the individual health insurance coverage, or both. The 
Departments invite comments on the types of benefits and provider 
arrangements that could be included in this coverage as well as their 
similarities to, or differences from, other types of excepted benefits 
described in the HIPAA regulations. The Departments also invite 
comments on whether the proposed standard should be modified to require 
that these wraparound coverage benefits be ``substantial'' or 
``material'' and, if so, how those terms should be defined.
    The limited wraparound coverage may, but is not required to, also 
provide benefits to reimburse for participants' otherwise applicable 
cost sharing under the individual health insurance policy, but that 
cannot be its primary purpose. For the benefits to be considered 
specifically designed to wrap around the individual health insurance 
coverage, it must provide additional wraparound benefits as discussed 
in the immediately preceding paragraph; the coverage cannot provide 
benefits solely pursuant to a coordination-of-benefits provision that 
simply pays benefits whenever the individual health insurance policy 
does not cover all or part of a medical expense.
    The third condition requires the limited wraparound coverage to be 
otherwise not an integral part of a group health plan. That is, under 
the proposed regulations, the plan sponsor offering the limited 
wraparound coverage must sponsor another group health plan meeting 
minimum value (as defined under section 36B(c)(2)(C)(ii) of the Code) 
for the plan year, referred to as the ``primary plan.'' This primary 
plan must be affordable for a majority of the employees eligible for 
the primary plan. Only individuals eligible for this primary plan may 
be eligible for the limited wraparound coverage. The Departments seek 
input on this proposed standard, including whether the majority level 
is an appropriate level (or whether the primary plan should provide 
coverage that is affordable for a higher or lower percentage of 
employees), recognizing the goal of preventing plan sponsors from 
shifting participants from the employer-sponsored primary plan to the 
individual market with limited wraparound coverage. Assuming use of the 
9.5% of income test set forth in section 36B(c)(2)(C)(i) of the Code as 
the basic definition of ``affordable,'' the Departments also request 
comments on how to implement that definition here--for example, whether 
the Departments should use a Form W-2 safe harbor based on employee 
wages like the one set forth in the proposed regulations under Code 
section 4980H.
    Under the fourth condition set forth in the proposed regulations, 
the limited wraparound coverage must be limited in amount. 
Specifically, the total cost of coverage under the limited wraparound 
coverage must not exceed 15 percent of the cost of coverage under the 
primary plan offered to employees eligible for the wraparound 
coverage.\22\ For this purpose, the cost of coverage includes both 
employer and employee contributions towards coverage and is determined 
in the same manner as that in which the applicable premium is 
calculated under a COBRA continuation provision.\23\ This is similar to 
the standard in the 2007 enforcement safe harbor for treating 
supplemental health insurance coverage as excepted benefits. Under the 
safe harbor, the cost of coverage under the supplemental policy, 
certificate, or contract of insurance must not exceed 15 percent of

[[Page 77636]]

the cost of primary coverage.\24\ The Departments solicit comment on 
the level of this threshold, as well as other possible thresholds that 
could be used to ensure that the benefit is limited in amount, such as 
whether other thresholds used in the context of health FSAs or health 
savings accounts (HSAs) would be easier to administer or more 
appropriate.
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    \22\ If an employer provides more than one primary plan option 
(for example, a health maintenance organization option and a 
preferred provider organization option), and one primary plan does 
not satisfy the 15% standard but another plan does, the Departments 
would consider the 15% standard to be met if the average value of 
the primary plan options meets the 15% standard.
    \23\ Under the COBRA rules, plans are generally permitted to 
charge up to 102 percent of the applicable premium. The cost of 
coverage for purposes of these proposed regulations is 100 percent 
of the applicable premium, not 102 percent of the applicable premium 
that the plan is generally permitted to charge under the COBRA 
rules.
    \24\ The Departments issued parallel guidance regarding 
supplemental health insurance coverage as excepted benefits under 
HIPAA and related legislation. See EBSA Field Assistance Bulletin 
No. 2007-04 (available at http://www.dol.gov/ebsa/pdf/fab2007-4.pdf); CMS Insurance Standards Bulletin 08-01 (available at http://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_08_01_508.pdf); 
and IRS Notice 2008-23 (available at http://www.irs.gov/irb/2008-07_IRB/ar09.html).
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    The fifth and final condition for the limited wraparound coverage 
to qualify as excepted benefits relates to nondiscrimination. The 
limited wraparound coverage must not differentiate among individuals in 
eligibility, benefits, or premiums based on any health factor of an 
individual (or any dependent of the individual), consistent with the 
requirements of section 2705 of the PHS Act (as incorporated into ERISA 
section 715 and Code section 9815) and its implementing regulations. 
This condition is similar to the standard in the 2007 enforcement safe 
harbor treating supplemental health insurance coverage as excepted 
benefits. In addition to the cost standard mentioned above, the safe 
harbor requires that such coverage be similar to Medicare Supplemental 
Coverage in that it must not differentiate among individuals in 
eligibility, benefits, or premiums based on any health factor of an 
individual (or any dependent of the individual).
    In addition, to satisfy the fifth condition, the limited wraparound 
coverage must not impose any preexisting condition exclusion, 
consistent with the requirements of section 2704 of the PHS Act (as 
incorporated into ERISA section 715 and Code section 9815) and its 
implementing regulations. Finally, both the primary coverage and the 
limited wraparound coverage must not discriminate in favor of highly 
compensated individuals, consistent with the provisions of section 2716 
of the PHS Act (also incorporated by reference into ERISA section 715 
and Code section 9815) and section 105(h) of the Code, and its 
implementing regulations at 26 CFR 1.105-11 as applicable.\25\ These 
limitations are intended to ensure the coverage is available regardless 
of health status and to prevent employers from shifting employees with 
high medical costs to an Exchange. Conditioning excepted benefit status 
on meeting standards consistent with the compensation-based 
nondiscrimination rules, in combination with the requirement that the 
primary plan be affordable for a majority of the employees eligible for 
it, helps ensure that employers will not be able to use wraparound 
coverage to send excessive numbers of low wage workers to the 
Exchanges. Comments are invited as to whether additional 
nondiscrimination standards are needed to prevent such cost-shifting 
and abuse.
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    \25\ Section 2716 of the PHS Act (as incorporated into ERISA and 
the Code) generally applies to insured coverage and section 105(h) 
of the Code and its implementing regulations generally apply to 
self-insured coverage.
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C. Employee Assistance Programs

    Employee assistance programs (EAPs) are typically programs offered 
by employers that can provide a wide-ranging set of benefits to address 
circumstances that might otherwise adversely affect employees' work and 
health. Benefits may include short-term substance use disorder or 
mental health counseling or referral services, as well as financial 
counseling and legal services. They are typically available free of 
charge to employees and are often provided through third-party vendors. 
To the extent an EAP provides benefits for medical care, it would 
generally be considered group health plan coverage, which would 
generally be subject to the HIPAA and Affordable Care Act market reform 
requirements, unless the EAP meets the criteria for being excepted 
benefits.
    Since enactment of the Affordable Care Act, various stakeholders 
have asked the Departments to treat EAPs as excepted benefits for 
reasons analogous to the arguments described above with respect to 
vision and dental benefits. Specifically, some employers represented 
that compliance with the prohibition on annual limits could be 
problematic as such benefits are typically very limited, and that EAPs 
generally are intended to provide benefits in addition to those 
provided under other group health plans sponsored by employers. 
Moreover, consumer groups have represented that EAPs with very limited 
benefits, which may be the only coverage offered to employees, may 
prohibit the employee from obtaining a premium tax credit under section 
36B of the Code if the EAP is treated as minimum essential coverage 
under section 5000A of the Code. At the same time, the Departments 
recognize that no universal definition exists for EAPs, and are 
concerned that employers not act to shift primary coverage to a 
separate ``EAP plan,'' exempt from the consumer protection provisions 
of title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the 
Code, including the mental health parity provisions.\26\
---------------------------------------------------------------------------

    \26\ The mental health parity provisions are included in PHS Act 
section 2726, ERISA section 712, and Code section 9812.
---------------------------------------------------------------------------

    The Departments issued guidance on September 13, 2013, which stated 
the Departments' intent to amend the excepted benefits regulations with 
respect to EAPs.\27\ The guidance also provided transition relief, 
stating, ``[u]ntil rulemaking is finalized, through at least 2014, the 
Departments will consider an employee assistance program or EAP to 
constitute excepted benefits only if the employee assistance program or 
EAP does not provide significant benefits in the nature of medical care 
or treatment. For this purpose, employers may use a reasonable, good 
faith interpretation of whether an employee assistance program or EAP 
provides significant benefits in the nature of medical care or 
treatment.''
---------------------------------------------------------------------------

    \27\ See IRS Notice 2013-54 (available at http://www.irs.gov/pub/irs-drop/n-13-54.pdf) and DOL Technical Release 2013-03 
(available at http://www.dol.gov/ebsa/newsroom/tr13-03.html), Q&A 9. 
See also CMS Insurance Standards Bulletin--Application of Affordable 
Care Act Provisions to Certain Healthcare Arrangements (available at 
http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf).
---------------------------------------------------------------------------

    These proposed regulations set forth criteria for an EAP to qualify 
as excepted benefits beginning in 2015. Under these proposed 
regulations, benefits provided under EAPs are excepted if four criteria 
are met. First, the program cannot provide significant benefits in the 
nature of medical care. The Departments invite comments on how to 
define ``significant.'' For example, the Departments request comments 
as to whether a program that provides no more than 10 outpatient visits 
for mental health or substance use disorder counseling, an annual 
wellness checkup, immunizations, and diabetes counseling, with no 
inpatient care benefits, should be considered to provide significant 
benefits in the nature of medical care.\28\
---------------------------------------------------------------------------

    \28\ Other examples of EAPs that do not provide significant 
benefits in the nature of medical care, discussed in IRS Notice 
2004-50 Q&A-10 include (1) an EAP with benefits that consist 
primarily of free or low-cost confidential short-term counseling 
(which could address substance abuse, alcoholism, mental health or 
emotional disorders, financial or legal difficulties, and dependent 
care needs) to identify an employee's problem that may affect job 
performance and, when appropriate, referrals to an outside 
organization, facility or program to assist the employee in 
resolving the problem; and (2) a wellness program that provides a 
wide-range of education and fitness services (also including sports 
and recreation activities, stress management, and health screenings) 
designed to improve the overall health of the employees and prevent 
illness, where any costs charged to the individual for participating 
in the services are separate from the individual's coverage under 
the health plan.

---------------------------------------------------------------------------

[[Page 77637]]

    The second criterion for an EAP to constitute excepted benefits is 
that its benefits cannot be coordinated with benefits under another 
group health plan. The Departments propose three conditions to meet 
this standard. Participants in the separate group health plan must not 
be required to exhaust benefits under the EAP (making the EAP a 
``gatekeeper'') before an individual is eligible for benefits under the 
other group health plan. Moreover, participant eligibility for benefits 
under the EAP must not be dependent on participation in another group 
health plan. Lastly, benefits under the EAP must not be financed by 
another group health plan.
    The third criterion for an EAP to constitute excepted benefits is 
that no employee premiums or contributions be required to participate 
in the EAP. The fourth criterion is that there is no cost sharing under 
the EAP.
    These criteria are intended to ensure that employers are able to 
continue offering EAPs as supplemental benefits to other coverage, and 
to ensure that in circumstances in which an EAP with limited benefits 
is the only coverage, or the only affordable coverage provided to an 
employee, that the coverage does not unreasonably disqualify an 
employee from otherwise being eligible for the premium tax credit for 
enrolling in coverage through an Exchange. The Departments request 
comments on whether the criteria proposed are sufficient to prevent the 
potential for abuse, including the evasion of compliance with the 
mental health parity provisions, and whether different or additional 
standards should be included.

D. Comment Solicitation, Applicability Date and Reliance

    The Departments invite comments on these proposed regulations 
generally, and on the specific issues identified in this preamble. 
Until rulemaking is finalized, through at least 2014, for purposes of 
enforcing the provisions of title XXVII of the PHS Act, part 7 of 
ERISA, and chapter 100 of the Code, the Departments will consider 
dental and vision benefits, and EAP benefits, meeting the conditions of 
these proposed regulations to qualify as excepted benefits. To the 
extent final regulations or other guidance with respect to vision or 
dental benefits or EAPs is more restrictive on plans and issuers than 
these proposed regulations, the final regulations or other guidance 
will not be effective prior to January 1, 2015.

III. Economic Impact and Paperwork Burden

A. Summary--Department of Labor and Department of Health and Human 
Services

    As stated above, these proposed regulations would amend the 
definition of limited excepted benefits to: (1) Eliminate the 
requirement that participants in self-insured plans pay an additional 
contribution for limited-scope vision or dental benefits to qualify as 
benefits that are not an integral part of a plan (and therefore as 
excepted benefits); (2) allow plan sponsors in limited circumstances to 
offer wraparound coverage to individuals who, but for the 
unaffordability of the premium, would receive such benefits through 
their group health plan; and (3) set forth the criteria under which 
EAPs that do not provide significant benefits in the nature of medical 
care constitute excepted benefits.

B. Executive Order 12866--Department of Labor and Department of Health 
and Human Services

    OMB has determined that this regulatory action is significant 
within the meaning of section 3(f)(4) of the Executive Order, and the 
Departments accordingly provide the following assessment of its 
potential benefits and costs. The Departments expect the impact of 
these proposed regulations to be limited because they do not require 
any action or impose any requirements on employers and plan sponsors. 
The proposed modifications to vision, dental, and EAP benefits are 
primarily clarifications. Additionally, the Departments expect that the 
take-up with respect to limited wraparound coverage will be limited for 
several reasons. The proposed rules are designed so that the wraparound 
coverage could not replace group coverage for employers who drop 
coverage or who otherwise do not offer minimum value coverage. Instead, 
the wraparound coverage would only be considered to be an excepted 
benefit if it is used to provide additional coverage to individuals and 
families enrolled in non-grandfathered individual health insurance 
coverage and for whom minimum value coverage under the employer's group 
health plan is offered but is unaffordable. Moreover, the proposed 
rules aim to prevent plan sponsors from structuring wraparound coverage 
so that low-income workers receive fewer primary benefits than high-
income workers. Lastly, the Departments note that provision of excepted 
benefits will not satisfy an applicable large employer's 
responsibilities under section 4980H of the Code.
    One objective of the Affordable Care Act is to allow individuals 
with comprehensive health insurance plans to maintain their current 
level of benefits. The Departments recognize that many plan sponsors 
provide generous health benefits to their workers. Some employers offer 
EAPs or other additional benefits to their employees as part of a 
comprehensive set of benefits. Others are interested in newly offering 
wraparound coverage to employees who qualify for tax credits in an 
Exchange to provide them with coverage comparable to employees who 
enroll in a group health plan. These proposed regulations would clarify 
the circumstances under which plan sponsors can provide such limited 
wraparound coverage to make their employees' coverage ``whole.''
    Specifically, these proposed regulations would allow plan sponsors 
to provide coverage for limited vision, dental, wraparound, and EAP 
benefits consistent with the qualifications for excepted benefits. 
These proposed improvements would help employees by continuing to 
maintain their access to health coverage that new requirements could 
constrain. The Departments expect these proposed regulations to have 
some costs, but these costs could be limited because they would not 
require any action or impose any requirements on employers and plan 
sponsors; take-up may be low; and the proposed modifications to vision, 
dental, and EAP benefits are primarily clarifications. With respect to 
vision and dental benefits, the proposed regulations would allow self-
insured plans to offer dental and vision benefits to employees without 
charging a nominal contribution. With respect to EAPs, the proposed 
regulations would clarify the extent to which such benefits constitute 
excepted benefits rather than primary coverage.
    With respect to wraparound coverage, the proposed regulations would 
allow plan sponsors to offer limited wraparound coverage to employees 
in certain limited circumstances. This proposal is not intended to 
replace group coverage for employers who drop coverage or who do not 
otherwise offer it, and offering the wraparound coverage will not 
satisfy an applicable large employer's responsibilities under section 
4980H of the Code. Instead, the proposal is intended for plan sponsors 
whose goal is to provide health benefits

[[Page 77638]]

to employees eligible for coverage through an Exchange that is, in 
total, comparable to the benefits offered through the sponsor's minimum 
value group health plan. As such, the targets of the proposed 
regulation are plan sponsors who otherwise would provide the full range 
of health benefits to qualifying enrollees. The wraparound coverage may 
only be offered to individuals eligible for the primary plan coverage 
the plan sponsor offers; and that primary coverage must provide minimum 
value and must be affordable for a majority of employees who are 
eligible for the primary plan coverage. Plan designs will be limited by 
nondiscrimination rules aimed at preventing plan sponsors from 
discriminating in favor of highly compensated employees or offering 
different benefits for workers along other dimensions such as health 
status (i.e., discriminating against those with high medical costs).
    The proposal provides additional flexibility for sponsors and does 
not impose additional costs on sponsors. The Federal budget impact of 
the proposal also depends on assumptions about the choices made by 
employers and workers. As with other group health coverage, employer 
contributions to the limited wraparound coverage would be excluded from 
employee income for tax purposes. The budget implications of adding 
limited wraparound coverage as a form of excepted benefits depend on 
the number of employers that elect this option and the number of 
employees that in turn receive it. As previously described, this 
proposal targets a narrow group of plan sponsors: those that offer 
minimum value coverage that is affordable for a majority of employees. 
The Departments seek input on this standard, including whether the 
majority level is an appropriate level (or whether the primary plan 
should provide coverage that is affordable for a larger or smaller 
fraction of employees), recognizing the goal of preventing plan 
sponsors from shifting employees from the primary plan to the 
individual market with limited wraparound coverage, and on the cost 
implications of different definitions. The cost of this proposal is 
difficult to quantify, as it is unclear how many plan sponsors will be 
eligible to offer and how many employees will elect the wraparound 
coverage. It is important to note that the cost of the proposed limited 
wraparound coverage can be reduced by limiting its availability. This 
could be accomplished by modifying the ``majority'' standard so that a 
greater proportion of employees would have to be offered a primary plan 
that is affordable. The majority level was proposed to help minimize 
the implications for the primary plan's risk pool by preventing a large 
number of low-wage workers from leaving the primary plan for Exchange 
coverage. The Departments invite input on this level, and on other 
standards that would achieve these goals.
    Another factor in assessing the proposal's cost is that the 
decision to offer the wraparound coverage is optional. There is greater 
administrative complexity associated with the wraparound coverage than 
primary coverage and, given a choice, some plan sponsors may choose to 
increase the affordability of their primary coverage rather than offer 
limited wraparound coverage. Some plan sponsors may not have that 
choice: the employers may not be in a financial position to make their 
primary health plans affordable, let alone contribute to wraparound 
coverage. Employers may also continue to allow employees to simply 
obtain Exchange coverage with no additional wraparound benefit, and 
these employers would continue to pay any shared responsibility 
payments as applicable, resulting in no additional Federal costs.
    The Departments seek comment on the effects of the proposal. 
Specifically, the Departments request detailed data that would inform 
the following questions: How many employers offer coverage that 
provides minimum value and is affordable for a majority of the 
employees who are eligible for coverage? What is the total number of 
individuals who are eligible for primary plan coverage that provides 
minimum value and is affordable for a majority of eligible employees, 
but would not find it affordable? To what extent would this proposed 
rule cause employers to drop health insurance coverage or avoid newly 
offering it, and what is the dollar value associated with such dropped 
coverage? To what extent would wrap-around coverage be offered more 
widely as a result of this rule, and what is the average dollar value 
associated with such coverage? To what extent would premiums for 
relatively generous health coverage change in the presence and in the 
absence of this rule?

C. Regulatory Flexibility Act--Department of Labor and Department of 
Health and Human Services

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a proposed rule is not likely 
to have a significant economic impact on a substantial number of small 
entities, section 603 of RFA requires that the agency present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities and seeking public comment on such impact. Small 
entities include small businesses, organizations and governmental 
jurisdictions.
    For purposes of the RFA, the Departments continue to consider a 
small entity to be an employee benefit plan with fewer than 100 
participants. The basis for this definition is found in section 
104(a)(2) of the act, which permits the Secretary of Labor to prescribe 
simplified annual reports for pension plans that cover fewer than 100 
participants. Pursuant to the authority of section 104(a)(3), the 
Department of Labor has previously issued at 29 CFR 2520.104-20, 
2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain 
simplified reporting provisions and limited exemptions from reporting 
and disclosure requirements for small plans, including unfunded or 
insured welfare plans covering fewer than 100 participants and 
satisfying certain other requirements.
    Further, while some large employers may have small plans, in 
general small employers maintain most small plans. Thus, the 
Departments believe that assessing the impact of these proposed rules 
on small plans is an appropriate substitute for evaluating the effect 
on small entities. The definition of small entity considered 
appropriate for this purpose differs, however, from a definition of 
small business that is based on size standards promulgated by the Small 
Business Administration (13 CFR 121.201) pursuant to the Small Business 
Act (15 U.S.C. 631 et seq.). The Departments therefore request comments 
on the appropriateness of the size standard used in evaluating the 
impact of this proposed rule on small entities.
    Because the proposed rules would impose no additional costs on 
employers or plans, the Departments believe that it would not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, pursuant to section 605(b) of the RFA, the Departments 
hereby certify that the proposed rules, if promulgated, would not have 
a

[[Page 77639]]

significant economic impact on a substantial number of small entities.

D. Special Analyses--Department of the Treasury

    For purposes of the Department of the Treasury it has been 
determined that this notice of proposed rulemaking is not a significant 
regulatory action as defined in Executive Order 12866, as supplemented 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. It has also been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these proposed regulations, and, because these proposed regulations do 
not impose a collection of information on small entities, a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) is not required. Pursuant to section 7805(f) of the Code, 
this notice of proposed rulemaking has been submitted to the Small 
Business Administration for comment on its impact on small business.

E. Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1501 et seq.), as well as Executive Order 12875, these proposed rules 
do not include any Federal mandate that may result in expenditures by 
State, local, or tribal governments, or the private sector, which may 
impose an annual burden of $100 million adjusted for inflation since 
1995.

F. Federalism--Department of Labor and Department of Health and Human 
Services

    Executive Order 13132 outlines fundamental principles of 
federalism. It requires adherence to specific criteria by Federal 
agencies in formulating and implementing policies that have 
``substantial direct effects'' on the States, the relationship between 
the national government and States, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with State and local officials, and describe 
the extent of their consultation and the nature of the concerns of 
State and local officials in the preamble to the final regulation.
    In the Departments' view, the proposed regulations, by clarifying 
policy regarding certain excepted benefits options that can be designed 
by employers to support their employees, would provide more certainty 
to employers and others in the regulated community as well as States 
and political subdivisions regarding the treatment of such arrangements 
under ERISA. Accordingly, the Departments will affirmatively engage in 
outreach with officials of State and political subdivisions regarding 
the proposed rules and seek their input on the proposed rules and any 
federalism implications that they believe may be presented by it.

G. Congressional Review Act

    These proposed regulations are subject to the Congressional Review 
Act provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.), and, if finalized, will be 
transmitted to the Congress and to the Comptroller General for review 
in accordance with such provisions.

IV. Statutory Authority

    The Department of the Treasury regulations are proposed to be 
adopted pursuant to the authority contained in sections 7805 and 9833 
of the Code.
    The Department of Labor regulations are proposed to be adopted 
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 
1191b, and 1191c; sec. 101(g), Public Law 104-191, 110 Stat. 1936; sec. 
401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 
512(d), Public Law 110-343, 122 Stat. 3765; Public Law 110-460, 122 
Stat. 5123; Secretary of Labor's Order 1-2011, 77 FR 1088 (January 9, 
2012).
    The Department of Health and Human Services regulations are 
proposed to be adopted pursuant to the authority contained in sections 
2701 through 2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Part 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

John Dalrymple,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Signed this 11th day of December, 2013.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: November 22, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: December 3, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

Department of The Treasury

Internal Revenue Service

    Accordingly, 26 CFR Part 54 is proposed to be amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805. * * *
    Section 54.9831-1 also issued under 26 U.S.C. 9833; * * *

0
Paragraph 2. Section 54.9831-1 is amended by revising paragraphs 
(c)(3)(i) and (c)(3)(ii), and adding paragraphs (c)(3)(vi) and 
(c)(3)(vii), to read as follows:


Sec.  54.9831-1  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (3) * * *
    (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 are excepted benefits if 
they satisfy the requirements of paragraph (c)(3)(v) of this section. 
Furthermore, benefits that wraparound individual health insurance 
coverage are excepted benefits if they satisfy the requirements of 
paragraph (c)(3)(vi) of this section, and benefits provided under an 
employee assistance program are excepted benefits if they satisfy the 
requirements of paragraph (c)(3)(vii) of this section.
    (ii) Not an integral part of a group health plan. For purposes of 
this paragraph (c)(3), benefits are not an

[[Page 77640]]

integral part of a group health plan (whether the benefits are provided 
through the same plan or a separate plan) only if participants have the 
right to elect not to receive coverage for the benefits.
* * * * *
    (vi) Limited wraparound coverage. Limited benefits that wraparound 
benefits provided through individual health insurance coverage are 
excepted benefits if all of the following requirements are satisfied--
    (A) Wraps around certain individual health insurance coverage. The 
individual health insurance coverage is not a grandfathered health plan 
(as described in section 1251 of the Affordable Care Act) and does not 
consist solely of excepted benefits (as defined in paragraph (c) of 
this section).
    (B) Covers benefits or providers not covered by individual health 
insurance coverage. The wraparound coverage is specifically designed to 
wrap around the individual health insurance coverage described in 
paragraph (c)(3)(vi)(A) of this section, as follows:
    (1) The wraparound coverage must provide coverage of benefits that 
are not essential health benefits, or reimburse the cost of health care 
providers that are considered out-of-network under the individual 
health insurance coverage, or both. The wraparound coverage may also 
provide benefits for participants' otherwise applicable cost sharing 
under the individual health insurance policy.
    (2) The wraparound coverage must not provide benefits only under a 
coordination-of-benefits provision.
    (C) Otherwise not an integral part of the plan. The plan sponsor 
with respect to the wraparound coverage must sponsor another group 
health plan meeting minimum value (as defined under section 
36B(c)(2)(C)(ii)) and that is affordable for a majority of the 
employees eligible for that group health plan (``primary plan''). Only 
individuals eligible for this primary plan may be eligible for the 
wraparound coverage.
    (D) Limited in amount. The total cost of coverage under the 
wraparound coverage must not exceed 15 percent of the cost of coverage 
under the primary plan (as described in paragraph (c)(3)(vi)(C) of this 
section). For this purpose, the cost of coverage includes both employer 
and employee contributions towards coverage and is determined in the 
same manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (E) Nondiscrimination. The following conditions must be satisfied:
    (1) The wraparound coverage must not differentiate among 
individuals in eligibility, benefits, or premiums based on any health 
factor of an individual (or any dependent of the individual), 
consistent with the requirements of section 2705 of the PHS Act (as 
incorporated into section 9815) and Sec.  54.9802-1.
    (2) The wraparound coverage must not impose any preexisting 
condition exclusion, consistent with the requirements of section 2704 
of the PHS Act (as incorporated into section 9815).
    (3) To the extent the primary coverage is insured, the primary 
coverage must not be discriminatory under section 2716 the PHS Act (as 
incorporated into section 9815). To the extent the primary coverage is 
self-insured, the primary coverage must not be discriminatory under 
section 105(h) and Sec.  1.105-11.
    (4) To the extent the wraparound coverage is insured, the 
wraparound coverage must not be discriminatory under section 2716 the 
PHS Act (as incorporated into section 9815) and to the extent the 
wraparound coverage is self-insured, the wraparound coverage must not 
be discriminatory under section 105(h) and Sec.  1.105-11.
    (vii) Employee assistance programs. Benefits provided under 
employee assistance programs are excepted if they satisfy all of the 
following requirements--
    (A) The program does not provide significant benefits in the nature 
of medical care.
    (B) The benefits under the employee assistance program cannot be 
coordinated with benefits under another group health plan, as follows:
    (1) Participants in the other group health plan must not be 
required to 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;
    (2) Participant eligibility for benefits under the employee 
assistance program must not be dependent on participation in another 
group health plan; and
    (3) Benefits under the employee assistance program must not be 
financed by another group health plan.
    (C) No employee premiums or contributions may be required as a 
condition of participation in the employee assistance program.
    (D) There is no cost sharing under the employee assistance program.
* * * * *

Employee Benefits Security Administration

29 CFR Chapter XXV

    For the reasons set forth above, 29 CFR part 2590 is proposed to be 
amended as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
1. The authority citation for part 2590 continues to read as follows:

    Authority: Secs. 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 
1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 
1191c; sec. 101(g), Public Law 104-191, 110 Stat. 1936; sec. 401(b), 
Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), 
Public Law 110-343, 122 Stat. 3765; Public Law 110-460, 122 Stat. 
5123; Secretary of Labor's Order 1-2011, 77 FR 1088 (January 9, 
2012).

0
2. Section 2590.732 is amended by revising paragraphs (c)(3)(i) and 
(c)(3)(ii), and adding paragraphs (c)(3)(vi) and (c)(3)(vii), to read 
as follows:


Sec.  2590.732  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (3) * * *
    (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 are excepted benefits if 
they satisfy the requirements of paragraph (c)(3)(v) of this section. 
Furthermore, benefits that wraparound individual health insurance 
coverage are excepted benefits if they satisfy the requirements of 
paragraph (c)(3)(vi) of this section, and benefits provided under an 
employee assistance program are excepted benefits if they satisfy the 
requirements of paragraph (c)(3)(vii) 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 or 
a separate plan) only if participants have the right to elect not to 
receive coverage for the benefits.
* * * * *
    (vi) Limited wraparound coverage. Limited benefits that wraparound 
benefits provided through individual

[[Page 77641]]

health insurance coverage are excepted benefits if all of the following 
requirements are satisfied--
    (A) Wraps around certain individual health insurance coverage. The 
individual health insurance coverage is not a grandfathered health plan 
(as described in section 1251 of the Affordable Care Act and Sec.  
2590.715-1251 of this part) and does not consist solely of excepted 
benefits (as defined in paragraph (c) of this section).
    (B) Covers benefits or providers not covered by individual health 
insurance coverage. The wraparound coverage is specifically designed to 
wrap around the individual health insurance coverage described in 
paragraph (c)(3)(vi)(A) of this section, as follows:
    (1) The wraparound coverage must provide coverage of benefits that 
are not essential health benefits, or reimburse the cost of health care 
providers that are considered out-of-network under the individual 
health insurance coverage, or both. The wraparound coverage may also 
provide benefits for participants' otherwise applicable cost sharing 
under the individual health insurance policy.
    (2) The wraparound coverage must not provide benefits only under a 
coordination-of-benefits provision.
    (C) Otherwise not an integral part of the plan. The plan sponsor 
with respect to the wraparound coverage must sponsor another group 
health plan meeting minimum value (as defined under section 
36B(c)(2)(C)(ii) of the Code) and that is affordable for a majority of 
the employees eligible for that group health plan (``primary plan''). 
Only individuals eligible for this primary plan may be eligible for the 
wraparound coverage.
    (D) Limited in amount. The total cost of coverage under the 
wraparound coverage must not exceed 15 percent of the cost of coverage 
under the primary plan (as described in paragraph (c)(3)(vi)(C) of this 
section). For this purpose, the cost of coverage includes both employer 
and employee contributions towards coverage and is determined in the 
same manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (E) Nondiscrimination. The following conditions must be satisfied:
    (1) The wraparound coverage must not differentiate among 
individuals in eligibility, benefits, or premiums based on any health 
factor of an individual (or any dependent of the individual), 
consistent with the requirements of section 2705 of the PHS Act (as 
incorporated into ERISA section 715) and Sec.  2590.715-2705.
    (2) The wraparound coverage must not impose any preexisting 
condition exclusion, consistent with the requirements of section 2704 
of the PHS Act (as incorporated into ERISA section 715) and Sec.  
2590.715-2704.
    (3) To the extent the primary coverage is insured, the primary 
coverage must not be discriminatory under section 2716 the PHS Act (as 
incorporated into ERISA section 715). To the extent the primary 
coverage is self-insured, the primary coverage must not be 
discriminatory under section 105(h) of the Code and 26 CFR 1.105-11.
    (4) To the extent the wraparound coverage is insured, the 
wraparound coverage must not be discriminatory under section 2716 the 
PHS Act (as incorporated into ERISA section 715). To the extent the 
wraparound coverage is self-insured, the wraparound coverage must not 
be discriminatory under section 105(h) of the Code and 26 CFR 1.105-11.
    (vii) Employee assistance programs. Benefits provided under 
employee assistance programs are excepted if they satisfy all of the 
following requirements--
    (A) The program does not provide significant benefits in the nature 
of medical care.
    (B) The benefits under the employee assistance program cannot be 
coordinated with benefits under another group health plan, as follows:
    (1) Participants in the other group health plan must not be 
required to 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;
    (2) Participant eligibility for benefits under the employee 
assistance program must not be dependent on participation in another 
group health plan; and
    (3) Benefits under the employee assistance program must not be 
financed by another group health plan.
    (C) No employee premiums or contributions may be required as a 
condition of participation in the employee assistance program.
    (D) There is no cost sharing under the employee assistance program.
* * * * *

Department of Health and Human Services

45 CFR Subtitle A

    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR part 146 as set forth 
below:

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
1. The authority citation for part 146 continues to read as follows:

    Authority: Secs. 2702 through 2705, 2711 through 2723, 2791, and 
2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 
through 300gg-23, 300gg-91, and 300gg-92).

0
2. Section 146.145 is amended by revising paragraphs (c)(3)(i) and 
(c)(3)(ii), and adding paragraphs (c)(3)(vi) and (c)(3)(vii), to read 
as follows:


Sec.  146.145  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (3) * * *
    (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 are excepted benefits if 
they satisfy the requirements of paragraph (c)(3)(v) of this section. 
Furthermore, benefits that wraparound individual health insurance 
coverage are excepted benefits if they satisfy the requirements of 
paragraph (c)(3)(vi) of this section, and benefits provided under an 
employee assistance program are excepted benefits if they satisfy the 
requirements of paragraph (c)(3)(vii) 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 or 
a separate plan) only if participants have the right to elect not to 
receive coverage for the benefits.
* * * * *
    (vi) Limited wraparound coverage. Limited benefits that wraparound 
benefits provided through individual health insurance coverage are 
excepted benefits if all of the following requirements are satisfied--
    (A) Wraps around certain individual health insurance coverage. The 
individual health insurance coverage is not a grandfathered health plan 
(as described in section 1251 of the Affordable Care Act and Sec.  
147.140 of this subchapter) and does not consist solely of excepted 
benefits (as defined in paragraph (c) of this section).

[[Page 77642]]

    (B) Covers benefits or providers not covered by individual health 
insurance coverage. The wraparound coverage is specifically designed to 
wrap around the individual health insurance coverage described in 
paragraph (c)(3)(vi)(A) of this section, as follows:
    (1) The wraparound coverage must provide coverage of benefits that 
are not essential health benefits, or reimburse the cost of health care 
providers that are considered out-of-network under the individual 
health insurance coverage, or both. The wraparound coverage may also 
provide benefits for participants' otherwise applicable cost sharing 
under the individual health insurance policy.
    (2) The wraparound coverage must not provide benefits only under a 
coordination-of-benefits provision.
    (C) Otherwise not an integral part of the plan. The plan sponsor 
with respect to the wraparound coverage must sponsor another group 
health plan meeting minimum value (as defined under section 
36B(c)(2)(C)(ii) of the Code) and that is affordable for a majority of 
the employees eligible for that group health plan (``primary plan''). 
Only individuals eligible for this primary plan may be eligible for the 
wraparound coverage.
    (D) Limited in amount. The total cost of coverage under the 
wraparound coverage must not exceed 15 percent of the cost of coverage 
under the primary plan (as described in paragraph (c)(3)(vi)(C) of this 
section). For this purpose, the cost of coverage includes both employer 
and employee contributions towards coverage and is determined in the 
same manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (E) Nondiscrimination. The following conditions must be satisfied:
    (1) The wraparound coverage must not differentiate among 
individuals in eligibility, benefits, or premiums based on any health 
factor of an individual (or any dependent of the individual), 
consistent with the requirements of section 2705 of the PHS Act and 
Sec.  147.110 of this subchapter.
    (2) The wraparound coverage must not impose any preexisting 
condition exclusion, consistent with the requirements of section 2704 
of the PHS Act and Sec.  147.108 of this subchapter.
    (3) To the extent the primary coverage is insured, the primary 
coverage must not be discriminatory under section 2716 the PHS Act. To 
the extent the primary coverage is self-insured, the primary coverage 
must not be discriminatory under section 105(h) of the Code and 26 CFR 
1.105-11.
    (4) To the extent the wraparound coverage is insured, the 
wraparound coverage must not be discriminatory under section 2716 the 
PHS Act. To the extent the wraparound coverage is self-insured, the 
wraparound coverage must not be discriminatory under section 105(h) of 
the Code and 26 CFR 1.105-11.
    (vii) Employee assistance programs. Benefits provided under 
employee assistance programs are excepted if they satisfy all of the 
following requirements--
    (A) The program does not provide significant benefits in the nature 
of medical care.
    (B) The benefits under the employee assistance program cannot be 
coordinated with benefits under another group health plan, as follows:
    (1) Participants in the other group health plan must not be 
required to 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;
    (2) Participant eligibility for benefits under the employee 
assistance program must not be dependent on participation in another 
group health plan; and
    (3) Benefits under the employee assistance program must not be 
financed by another group health plan.
    (C) No employee premiums or contributions may be required as a 
condition of participation in the employee assistance program.
    (D) There is no cost sharing under the employee assistance program.
* * * * *
[FR Doc. 2013-30553 Filed 12-20-13; 11:15 am]
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P