Linda Rowings, Chief Compliance Officer at United Benefit Advisors
On February 13, 2015, the regulatory agencies issued an FAQ on whether supplemental health insurance coverage that provides additional categories of benefits may qualify as supplemental excepted benefits. Many provisions of PPACA do not apply to excepted health benefits. Supplemental excepted benefits are those that are provided under a separate policy, certificate, or contract of insurance and are Medicare supplement insurance (Medigap), Tricare 
supplemental programs, or “similar” supplemental coverage.
Supplemental excepted benefits: Generally, to determine if a similar supplemental coverage qualifies as an excepted benefit it must meet four criteria: (1) the policy, certificate, or contract of insurance must be issued by an entity that does not provide the primary coverage under the plan; (2) the supplemental policy or certificate, or contract of insurance must be must be specifically designed to fill gaps in primary coverage (such as coinsurance or deductibles); (3) the cost of the supplemental coverage must not exceed 15% of the cost of primary coverage; and (4) supplemental coverage sold in the group insurance market must not differentiate among individuals in eligibility, benefits, or premiums based upon any health factor of the individuals, or their dependents.
Single benefit coverage: With these criteria in mind, the FAQ addressed whether or not health insurance issuers selling supplemental products providing a single benefit can characterize the single product as an excepted benefit and thereby avoid many PPACA requirements. The agency did not provide a specific rule, but said it intends to propose regulations clarifying that a product that does not fill in cost-sharing – such as deductibles or coinsurance – under the primary plan could still be considered to be designed to “fill gaps” in primary coverage, and therefore excepted, but only if it does not provide coverage for a service or supply that is an essential health benefit (EHB) in the state where it is marketed. This means, for example, that a product that is being marketed as minimum essential coverage with a prescription drug supplemental benefit would not be allowed. Until these regulations are proposed and finalized, the IRS will not impose penalties on supplemental coverage which:
- Provides coverage of additional categories of benefits that are not EHB in the applicable state;
- Complies with the four criteria mentioned above and other applicable regulatory requirements; and
- Has been filed and approved with the state, as required by state law.
Employers that have arrangements that may not satisfy this FAQ may wish to contact the vendor providing the supplemental benefit to determine how it plans to remedy the situation.
For information on other new IRS rules and commenting opportunities download UBA’s latest PPACA Advisor, “February 2015 IRS Rules and Notices.”
To understand the final regulations defining when certain plans will be considered “excepted benefits,” download UBA’s PPACA Advisor, “Excepted Benefits – ‘Limited Scope’ Dental and Vision Plans and EAPs.”