This is the one-hundredth issue in our health care reform series of alerts for employers on selected topics in health care reform. (Our general summary of health care reform and other issues in this series can be accessed by clicking here.) This series of Health Care Reform Management Alerts is designed to provide a more in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.
On June 10, 2016, the Departments of Treasury, Health and Human Services and Labor (the “Departments”) issued proposed regulations on excepted benefits and expatriate coverage. Comments are due August 9, 2016 and the proposed regulations, if finalized, will go into effect for plan years beginning on or after January 1, 2017.
The proposed regulations would formalize rules under the Expatriate Health Coverage Clarification Act of 2014 (the “EHCCA”). Consistent with prior guidance (see Issue 59) the proposed rules provide that an “expatriate health plan” is not subject to the ACA, the Patient Centered Outcomes Research Institute fee (PCROI fee) and the Transitional Reinsurance Program fee (TRP fee). Health coverage provided by an expatriate health plan constitutes minimum essential coverage for purposes of the individual mandate.
Because expatriate health plan coverage constitutes minimum essential coverage, Form 1094 and 1095 reporting applies, though an expatriate health plan can distribute Forms 1095 to participants electronically other than to those participants who explicitly refuse to receive the statement electronically. Upon becoming effective, the participant will have to receive a notice of his or her right to refuse electronic delivery at least 30 days before the deadline for the first Form 1095 the plan intends to provide to the participant electronically.
Finally, expatriate health plans are exempt from the ACA’s so-called “market reforms” (e.g., adult child coverage mandate, prohibition on lifetime and annual dollar limits, etc.), subject to the caveat that the plans must comply with certain of these standards (e.g., adult child coverage) to even meet the definition of a qualifying expatriate health plan.
What is an Expatriate Health Plan?
An expatriate health plan is a plan where substantially all (95%) of the primary enrollees (i.e., not a spouse or dependent) are qualified expatriates. An individual is not a primary enrollee if the individual is not a national of the U.S. and resides in his or her country of citizenship. The expatriate health plan must be issued by an expatriate health insurance issuer or administered by an expatriate health plan administrator. (The proposed regulations contain very specific requirements on who can serve in these roles; however, one requirement is that the insurer be licensed to sell insurance in the U.S. In the case of an administrator, the administrator must be in the same controlled group as, or contract with, an insurer licensed to sell insurance in the U.S.)
The proposed regulations would require that an expatriate health plan cover inpatient hospital services, outpatient facility services, physician services and emergency services. Dependent children, if eligible, must be eligible until at least age 26. The plan sponsor must reasonably believe the coverage provides “minimum value.” For this purpose, the sponsor can rely on reasonable representations of the issuer or administrator unless the sponsor knows or has reason to know the benefits fail to satisfy the minimum value requirements.
As noted above, qualifying expatriate plans are exempt from the ACA’s market reforms. Thus, for example, expatriate health plans can impose preexisting condition exclusions. An expatriate health plan imposing preexisting condition exclusions must provide enrollees an opportunity to demonstrate that they had creditable coverage to offset the preexisting condition exclusion. Since plans are no longer are required to issue certificates of creditable coverage the proposed regulations state that an email from a prior issuer, plan administrator or plan sponsor could suffice to demonstrate prior coverage.
Who is a Qualified Expatriate?
As noted above, an expatriate health plan covers qualified expatriates. The proposed regulations describe two categories of qualified expatriates that relate to the employment relationship:
Inbound employees: an individual who is not a national of the United States, whose skills, qualifications, job duties or expertise has caused the individual’s employer to transfer or assign the individual to the U.S. for a specific and temporary purpose or assignment tied to the individual’s employment and who the plan sponsor reasonably determines requires access to health insurance and other support in multiple countries (because the individual is expected to travel outside the U.S. at least one time per year). A qualified expatriate also must be offered other multinational benefits on a periodic basis (more than a one-time de minimis benefit) such as tax equalization, compensation for cross-border moving expenses or compensation to enable the expatriate to return to his or her home country.
Outbound employees: a national of the United States who works outside the U.S. for at least 180 days during a consecutive 12-month period that overlaps with the plan year. The plan has to cover certain services such as inpatient and outpatient services in the country where the individual is present in connection with his or her employment.
The proposed regulations also describe a third category of qualified expatriate not pertaining to an employment relationship, which, in general, includes members of a group traveling or relocating internationally for a tax-exempt or social welfare purposes.
Who is a National of the United States? A national includes U.S. citizens and non-citizen nationals. The proposed regulations cross-reference the definition in the Immigration and Nationality Act and note by illustration that an individual born in American Samoa is a national of the United States at birth.
Are Expatriate Plans Subject to the Cadillac Tax? The EHCCA provides that the Cadillac Tax applies to employer-sponsored coverage of a qualified expatriate who is assigned, rather than transferred, to work in the U.S. These proposed regulations do not address the interaction of the EHCCA and the Cadillac Tax because the IRS anticipates that this issue will be addressed in future guidance.
How do these regulations impact prior guidance on expatriate plans?
Prior to the issuance of these proposed regulations, HHS had a process where plan sponsors could apply to have their expatriate coverage recognized as minimum essential coverage. Additionally, the Departments had issued transitional guidance describing characteristics of expatriate plans considered to be minimum essential coverage and to be in compliance with the ACA’s market reforms (specifically, plans in which enrollment is limited to primary insureds for whom there is a good faith expectation that such individuals will reside outside of their home country or outside of the U.S. for at least six months of a 12-month period).
The regulations specifically note that the application process will remain in effect as an alternative to qualifying under the EHCCA. The regulations do not specifically address the transition guidance, but because it was issued as transition relief pending issuance of these regulations, presumably plans relying on this guidance could no longer do so, effective for plan or policy years beginning on or after January 1, 2017.
Excepted benefits are exempt from most of the Affordable Care Act’s insurance market reforms and other federal mandates. Excepted benefits do not constitute “minimum essential coverage,” so enrollment in an excepted benefit will not render an employee ineligible for a tax credit on the Health Insurance Marketplaces.
Hospital Indemnity and Other Fixed Indemnity Coverages
The proposed regulations elaborate on a category of excepted benefits referred to as noncoordinated excepted benefits, which include hospital indemnity and other fixed indemnity insurance contracts, and contracts providing coverage for a specified disease or illness (such as cancer-only policies). Both types of benefits must meet the following criteria to qualify as an excepted benefit:
The benefits must be provided under a separate policy, certificate or contract of insurance;
No coordination is allowed between the provision of such benefits and any exclusion under any group health plan maintained by the same plan sponsor;
The benefits must be paid without regard to whether benefits are provided under any group health plan maintained by the same plan sponsor; and
In the group health plan market, the insurance must pay a fixed dollar amount per day or other time period (e.g., $100 per day) of hospitalization or illness, regardless of the amount incurred.
Hospital indemnity and other fixed indemnity contracts pay the policyholder a set amount upon a certain occurrence (such as hospitalization) without regard to the policyholder’s actual out-of-pocket costs. It is intended to be more of an income replacement benefit than health insurance coverage. With regard to the fourth criteria above, some insurers’ contracts provide benefits that vary depending on the type of occurrence. For example, the contract might pay the participant for doctors’ visits at a fixed amount per visit, for prescription drugs at a fixed amount per drug, or for certain services at a fixed amount per day but the amounts vary by the type of service. The Departments were concerned that these variations cause the contracts to fail to meet the “per day” (or other time period) requirement. They also were concerned that some policies, which otherwise met the excepted benefit requirements, nonetheless provided fairly comprehensive benefits and had been marketed as constituting minimum essential coverage.
To address these concerns, the proposed regulations would clarify that the amount of benefits should not vary based on the types of items or services rendered. By way of example, the regulations note that a policy providing benefits for doctors’ visits at $50 per visit, hospitalization at $100 per day, various surgical procedures at different dollar rates per procedure, and prescription drugs at $15 per prescription would not qualify as an excepted benefit. Further, the regulations require any application or enrollment materials to include a statement in 14 point font informing the policyholder that the coverage is a supplement to, rather than a substitute for, major medical coverage and that a lack of minimum essential coverage may result in an additional tax payment.
To be clear, these rules do not prohibit the types of benefits outlined above, with payments varying depending on the type of service or on a basis on than per diem. Those policies simply do not qualify as excepted benefits, meaning they are reportable on Forms 1094/1095 and are subject to the ACA’s market reforms (including, notably, the prohibition on annual and lifetime dollar limits).
Comments Requested: With regard to noncoordinated benefits covering a specific disease or illness, the Departments are seeking comments about policies covering multiple specified diseases or illnesses. The Departments’ concern is consumers having a misimpression that they are purchasing comprehensive medical coverage. The Departments are soliciting comments on protections that may be needed to ensure coverages providing benefits for multiple diseases or illnesses are not mistaken for comprehensive medical coverage.
The Departments propose to use their rulemaking authority to designate travel-related products that provide only incidental health benefits as excepted benefits. Such products include coverage for personal risks such as interruption or cancellation of a trip or event, lost baggage, rental car damage, and sickness, accident, disability or death occurring during travel. To be an excepted benefit, the regulations propose that health benefits cannot be offered on a stand-alone basis and must be incidental to other coverage. The benefit also could not provide major medical coverage for travelers on trips lasting 6 months or longer.
What Other Types of Excepted Benefits Have the Departments Addressed in Connection with the ACA?
Dental and Vision: dental and vision plans are considered excepted benefits if the benefits offered are limited in scope and are either issued under a separate policy or are not otherwise considered integral to the medical plan. Issue 74. Dental and vision excepted benefits include any self-funded dental/vision benefits under which the claims for the benefits are administered under a contract separate from the claims administration for any other benefits under the plan or where participants can opt-out of those benefits. See Issue 74 and Issue 87.
Employee Assistance Program: employee assistance programs can provide a limited amount of medical benefits and still qualify as an excepted benefit if, among other things, they do not require premiums for participation and do not coordinate with another group health plan. See Issue 74 and Issue 87.
Supplemental Insurance Coverage: insurance contracts designed to fill gaps in primary coverage (such as coinsurance or deductibles) which are issued by a carrier not providing primary health coverage under the employer’s plan. The proposed regulations confirm prior FAQ guidance that coverage is not supplemental if it provides benefits that are essential health benefits in the state where the policy is marketed. See Issue 91.
Wraparound Coverage: meaningful coverage beyond cost-sharing that wraps around a primary offering, which could be an individual insurance policy such as a Marketplace policy. Employers could offer this to members of its workforce who are not eligible for the employer’s affordable, minimum value coverage (such as non-full-time employees). See Issue 91.
Short-Term, Limited-Duration Coverage
Short-term, limited-duration coverage is not an excepted benefit, but is outside of the scope of the ACA by statute. This type of policy generally provides coverage that lasts fewer than 12 months and is intended to bridge gaps between health insurance enrollments, such as when transitioning from one job to another. This type of coverage, in the Departments’ view, has become less critical after the ACA now that preexisting condition exclusions are no longer permitted. Also, the Departments have recently been aware that short-term, limited-duration insurance is being purchased as a primary form of health coverage and some issuers provide renewals extending the coverage beyond 12 months. The proposed regulations would revise the definition of short-term, limited duration insurance so the coverage must be less than 3 months in duration, including renewals, and require a notice in the contract and application materials informing the individual that it is not minimum essential coverage.
Self-funded plans must select a benchmark plan for purposes of determining whether any annual or lifetime limits it imposes affect essential health benefits. See Issue 90. The proposed regulations make a minor clarification to the definition of “essential health benefits.”
If your plan includes a benefit intended to qualify as a fixed hospital or other fixed indemnity policy, review to ensure the reimbursements do not vary depending on type of service and are made on a per diem basis.
If your company offers expatriate plans that are intended to constitute minimum essential coverage, check with your carrier that the plan meets minimum value and that the carrier is a qualified expatriate health insurance issuer. Confirm that substantially all of those covered under the expatriate plan are qualified expatriates.