[Federal Register Volume 80, Number 52 (Wednesday, March 18, 2015)]
[Rules and Regulations]
[Pages 13995-14009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06066]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
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Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / 
Rules and Regulations

[[Page 13995]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9714]
RIN 1545-BM44

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB70

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 146

[CMS-9946-F2]
RIN 0938-AS52


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: Final rules.

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SUMMARY: This document contains final regulations that 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 to specify requirements for limited wraparound 
coverage to qualify as an excepted benefit. Excepted benefits are 
generally exempt from the requirements that were added to those laws by 
the Health Insurance Portability and Accountability Act and the 
Affordable Care Act.

DATES: These final regulations are effective on May 18, 2015.

FOR FURTHER INFORMATION CONTACT: Amy Turner or Elizabeth Schumacher, 
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) 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. (These statutes 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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    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

[[Page 13996]]

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 Health and Human Services (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 (specifically, ERISA section 
732(c)(1), PHS Act section 2722(c)(1), and Code section 9831(c)(1)) 
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.\12\
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    \11\ 26 CFR 54.9831-1(c)(3)(v); 29 CFR 2590.732(c)(3)(v); 45 CFR 
146.145(b)(3)(v).
    \12\ See the discussion in the 2014 final regulations concerning 
the application of these requirements to benefits such as limited-
scope dental and vision benefits and employee assistance programs at 
79 FR 59131 (Oct. 1, 2014).
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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. In the group 
market, 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.\13\
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    \13\ 26 CFR 54.9831-1(c)(4); 29 CFR 2590.732(c)(4); 45 CFR 
146.145(b)(4). See also Q7 in Affordable Care Act Implementation 
FAQs Part XI, available at http://www.dol.gov/ebsa/faqs/faq-aca11.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html.
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    The fourth category of excepted benefits is supplemental excepted 
benefits.\14\ 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.\15\
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    \14\ On February 13, 2015, the Departments issued guidance to 
clarify whether insurance coverage that supplements group health 
coverage by providing additional categories of benefits (and does 
not also fill gaps in group health plan coverage for cost-sharing 
obligations, such as coinsurance or deductibles) can be 
characterized as an excepted benefit. See Affordable Care Act 
Implementation FAQs Part XXIII, available at http://www.dol.gov/ebsa/faqs/faq-aca23.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/Supplmental-FAQ_2-13-15-final.pdf.
    \15\ 26 CFR 54.9831-1(c)(5); 29 CFR 2590.732(c)(5); 45 CFR 
146.145(b)(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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    In 2004, the Departments of the Treasury, Labor, and HHS published 
final regulations with respect to excepted benefits (the HIPAA 
regulations).\16\ (Subsequent references to the ``Departments'' include 
all three Departments, unless the headings or context indicate 
otherwise.)
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    \16\ 69 FR 78720 (Dec. 30, 2004).
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    On December 24, 2013, the Departments published additional proposed 
regulations with respect to the second category of excepted benefits, 
limited excepted benefits (2013 proposed regulations).\17\ The 2013 
proposed regulations proposed to: (1) Eliminate the requirement that 
participants in self-insured plans pay an additional premium or 
contribution for limited-scope vision or dental benefits to qualify as 
benefits that are not an integral part of the plan; (2) set forth the 
criteria under which employee assistance programs (EAPs) that do not 
provide significant benefits in the nature of medical care constitute 
excepted benefits; and (3) allow plan sponsors in certain limited 
circumstances to offer, as excepted benefits, coverage that wraps 
around certain individual health insurance coverage. The intent of 
limited wraparound coverage is to permit employers to provide certain 
employees, dependents, and retirees who are enrolled in some type of 
individual market coverage with overall coverage that is generally 
comparable to the coverage provided under the employers' group health 
plan, without eroding employer-sponsored coverage.
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    \17\ 78 FR 77632.(Dec. 23, 2014).
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    After consideration of comments received on the 2013 proposed 
regulations, the Departments published final regulations regarding 
dental and vision benefits and EAP benefits on October 1, 2014 (2014 
final regulations).\18\ In the 2014 final regulations, the Departments 
also stated their intent to publish regulations that addressed limited 
wraparound coverage in the future, taking into account the extensive 
comments received on this issue.\19\ After consideration of comments on 
the 2013 proposed regulations, on December 23, 2014, the Departments 
published new proposed regulations with respect to limited wraparound 
coverage (2014 proposed regulations), which set forth five requirements 
under which limited benefits provided through a group health plan that 
wrap around either eligible individual insurance or coverage under a 
Multi-State Plan would constitute excepted benefits.\20\ A description 
of the 2014 proposed regulations is set forth below, together with a 
summary of the comments received on the 2014 proposed regulations and 
an overview of these final regulations.
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    \18\ 79 FR 59131 (Oct. 1, 2014).
    \19\ 79 FR 59131 (Oct. 1, 2014).
    \20\ 79 FR 76931 (Dec. 23, 2014).
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II. Overview of the Final Regulations

    Under the 2014 proposed regulations, limited benefits provided 
through a group health plan that wrap around either (1) eligible 
individual health insurance, or (2) coverage under a Multi-State Plan 
(collectively referred to as ``limited wraparound coverage'') could 
constitute excepted benefits, if five requirements were met. For this 
purpose, the 2014 proposed regulations defined ``eligible individual 
health insurance'' as individual health insurance coverage that is not 
a grandfathered health plan,\21\ not a transitional individual health 
insurance market plan,\22\ and does not consist solely of excepted 
benefits. The preamble to the 2014 proposed regulations acknowledged 
that, in States that elect to establish a Basic Health Program (BHP), 
certain low-income individuals (for example, those with household 
income between 133 percent and 200 percent of the Federal poverty

[[Page 13997]]

level) who would otherwise qualify for a tax credit to obtain a 
qualified health plan through an Exchange would instead be enrolled in 
coverage through the BHP. The Departments invited comments on how an 
employer might make wraparound coverage available to BHP enrollees.\23\
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    \21\ See section 1251 of the Affordable Care Act, 29 CFR 
2590.715-1251, and 45 CFR 147.140.
    \22\ As described in CMS Insurance Standards Bulletin (March 5, 
2014) available at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/transition-to-compliant-policies-03-06-2015.pdf.
    \23\ 79 FR 76935, footnote 32.
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    Comments addressing the BHP all supported permitting wraparound of 
BHP coverage. The Departments agree and, therefore, these final 
regulations permit limited wraparound coverage of BHP coverage in the 
same manner as limited wraparound coverage of eligible individual 
health insurance.

A. Covers Additional Benefits

    The 2014 proposed regulations stated that limited wraparound 
coverage would have to be specifically designed to wrap around eligible 
individual health insurance or Multi-State Plan coverage. That is, the 
limited wraparound coverage would have to provide meaningful benefits 
beyond coverage of cost sharing under the eligible individual health 
insurance or Multi-State Plan coverage. The preamble to the 2014 
proposed regulations provided examples, such as that limited wraparound 
coverage could provide coverage for expanded in-network medical clinics 
or providers, or provide benefits that are not essential health 
benefits (EHBs) and that are not covered under the eligible individual 
health insurance.\24\ The preamble to the 2014 proposed regulations 
also provided that limited wraparound coverage would not be permitted 
to provide benefits solely under a coordination-of-benefits provision 
and could not be an account-based reimbursement arrangement.\25\ 
Limited wraparound coverage that covers solely cost sharing would not 
be permissible, as stated in the preamble to the 2014 proposed 
regulations, because reduced cost sharing can be obtained by choosing 
an individual health insurance policy with a higher actuarial value 
(for example, a platinum plan with a 90 percent actuarial value).\26\ 
The Departments invited comment on safe harbors standardizing the 
benefits in the limited wraparound coverage that could be established.
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    \24\ 79 FR 76935
    \25\ 79 FR 76936
    \26\ Id.
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    Many commenters requested additional clarity on the type of 
benefits that could be offered as meaningful benefits in limited 
wraparound coverage. Suggestions included reimbursement for the full 
cost of primary care, the cost of prescription drugs not on the 
formulary of the primary plan, ten physician visits per year, services 
considered to be provided out-of-network by the primary plan, access to 
onsite clinics or specific health facilities at no cost, or benefits 
targeted to a specific population (such as coverage for certain 
orthopedic injuries), home health coverage, or coverage of other 
benefits that are not covered EHBs under the primary plan. The 
Departments consider all of these examples to qualify as additional, 
meaningful benefits under this first requirement to be limited 
wraparound coverage that qualifies as excepted benefits. As discussed 
further below, the Departments reiterate that limited wraparound 
coverage that is an excepted benefit cannot be an account-based 
mechanism and instead must be a risk-sharing product that covers a 
defined package of services.

B. Limited in Amount

    For the second requirement to be limited wraparound coverage that 
qualifies as excepted benefits, the Departments proposed that the 
limited wraparound coverage be limited in amount. Specifically, the 
2014 proposed regulations provided that the annual cost of coverage per 
employee (and any covered dependents) under the limited wraparound 
coverage could not exceed the maximum annual contribution for health 
FSAs (which was $2,500 in 2014), indexed in the manner prescribed under 
Code section 125(i)(2) (which amounts to $2,550 for 2015), and the cost 
of coverage would include both employer and employee contributions 
towards coverage and be determined in the same manner as the applicable 
premium is calculated under a COBRA continuation provision. The 
preamble to the 2014 proposed regulations stated that the bright-line 
limitation was intended to be simpler to administer than a cap of 15 
percent of the cost of the plan sponsor's primary coverage as set forth 
in the 2013 proposed regulations.
    Many comments stated that the limits on the amount should be higher 
so that individuals eligible for the limited wraparound coverage would 
not experience gaps in coverage. Some commenters suggested that the 
Departments consider an alternative, referencing the higher health 
savings account (HSA) limits, which are $3,350 for individual coverage 
and $6,650 for families in 2015, indexed annually. Others suggested the 
Departments set the limit as the greater of: The maximum permitted 
annual salary reduction towards a health FSA (as was set forth in the 
2014 proposed regulations), or a percentage of the cost of coverage 
under the primary plan (as was set forth in the 2013 proposed 
regulations).
    These final regulations adopt the last suggestion. Either the 
dollar or percent limitation would satisfy the Departments' objective 
of ensuring that the limited wraparound coverage provides a limited 
benefit, as required by the statute, and be similar to other limited 
excepted benefits (that is, dental benefits, vision benefits, long term 
care, nursing home care, home health care, community-based care, or 
health FSAs as described in 26 CFR 54.9831-1(c)(3); 29 CFR 
2590.732(c)(3); 45 CFR 146.145(b)(3)). The percentage, as in the 2013 
proposed regulations, is 15 percent of the cost of coverage under the 
primary plan.
    The final regulations do not adopt the suggestion to use much 
higher limits on the cost of coverage (for example, the HSA limits). 
Too large a benefit that is not limited in scope (c.f., limited-scope 
dental and vision excepted benefits) would not constitute a ``similar, 
limited benefit'' under ERISA section 733(c)(2), PHS Act section 
2791(c)(2), or Code section 9832(c)(2).
    The Departments also received requests for clarification regarding 
the administration of the second requirement (that is, that the limited 
wraparound coverage be limited in amount). Some comments requested that 
the determination of the cost of coverage be permitted to be made on an 
aggregate basis in advance of each plan year by an actuary, and not 
based on actual experience of the group or any individual during the 
plan year. This approach is precisely the approach that was intended by 
the Departments. As stated earlier, to qualify as excepted benefits, 
the limited wraparound coverage could not be an account-based 
reimbursement arrangement. That is, the coverage must include a risk-
sharing element. As such, making a determination regarding the cost of 
coverage must occur on an aggregate basis. Moreover, to the extent this 
determination for a given plan year is made on sound actuarial 
principles that are appropriately documented, the actual experience of 
the group or any individual during the plan year would not be a factor 
in determining the cost of coverage for that plan year (although it 
could impact future years by providing additional information on which 
the actuarial estimate of the cost of coverage for future years would 
be based). The final regulations include this clarification.

[[Page 13998]]

C. Nondiscrimination

    Under the 2014 proposed regulations, the third requirement for 
limited wraparound coverage to qualify as excepted benefits related to 
nondiscrimination. Specifically, the Departments proposed three sub-
requirements relating to nondiscrimination. First, the wraparound 
coverage could not impose any preexisting condition exclusion, 
consistent with the requirements of section 2704 of the PHS Act (as 
incorporated into section 715 of ERISA and section 9815 of the Code) 
and implementing regulations.\27\ Second, the wraparound coverage could 
not discriminate against 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 702 of 
ERISA, section 9802 of the Code, and section 2705 of the PHS Act (as 
incorporated into section 715 of ERISA and section 9815 of the Code) 
and implementing regulations.\28\ Finally, neither the primary group 
health plan coverage nor the limited wraparound coverage could fail to 
comply with section 2716 of the PHS Act (as incorporated into section 
715 of ERISA and section 9815 of the Code) or fail to be excludible 
from income with respect to any individual due to the application of 
section 105(h) of the Code (as applicable). These final regulations 
adopt the approach outlined in the 2014 proposed regulations.
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    \27\ 29 CFR 2590.715-2704 and 45 CFR 147.108. See also Q2 in 
Affordable Care Act Implementation FAQs Part XXII, available at 
http://www.dol.gov/ebsa/faqs/faq-aca22.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf regarding the prohibition against offering employees with 
high claims risk a choice between enrollment in its standard group 
health plan or cash.
    \28\ 26 CFR 54.9802-1, 29 CFR 2590.702, and 45 CFR 146.121.
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    The Departments received two comments on this third requirement. 
One commenter inquired as to the potential interaction between excepted 
benefits and the excise tax on high cost employer-sponsored health 
coverage under Code section 4980I. The Treasury and the IRS issued 
Notice 2015-16 on February 23, 2015 describing potential approaches 
with regard to a number of issues under Code section 4980I and inviting 
comments by May 15, 2015. Issues relating to Code section 4980I will be 
addressed as part of that rulemaking. Another commenter requested that 
the Departments consider ``modernizing'' the nondiscrimination 
provisions under Code section 105(h) and section 2716 of the PHS Act 
relating to prohibiting discrimination in favor of highly compensated 
employees. The Departments are considering this suggestion and other 
comments previously received for purposes of future guidance relating 
to these provisions.

D. Plan Eligibility Requirements

    The fourth requirement to qualify as excepted benefits concerned 
plan eligibility requirements. First, under the 2014 proposed 
regulations, individuals eligible for the limited wraparound coverage 
could not be enrolled in excepted benefit coverage that is a health 
FSA. One commenter suggested permitting dual enrollment in limited 
wraparound coverage and health FSA coverage. However, as described 
earlier, the Departments are using their discretion under ERISA section 
733(c)(2), PHS Act section 2791(c)(2), and Code section 9832(c)(2) to 
define ``other similar, limited benefits'' as excepted benefits and do 
not adopt this suggestion. To ensure that wraparound coverage is a 
limited benefit, like health FSAs, the Departments do not intend to 
allow plan sponsors to combine multiple excepted benefits into an 
arrangement that functions as a material substitute for primary group 
health plan coverage and still be exempt from the health market 
reforms.
    Under the 2014 proposed regulations, as part of the fourth 
requirement for limited wraparound coverage to constitute excepted 
benefits, coverage would be required to comply with one of two 
alternative sets of standards relating to eligibility and benefits: one 
set of plan eligibility requirements for wraparound benefits offered in 
conjunction with eligible individual health insurance (or BHP coverage) 
for persons who are not full-time employees, and a separate set of 
standards for coverage that wraps around certain Multi-State Plan 
coverage. As described further below, limited wraparound coverage for 
persons who are not full-time employees is intended for employers that 
are generally offering affordable, minimum value coverage to their 
full-time workers but want to offer an additional limited benefit to 
their part-time workers. Limited wraparound coverage offered in 
conjunction with a Multi-State Plan is intended for employers that were 
offering reasonably comprehensive coverage prior to the promulgation of 
these final rules, and wish to offer limited wraparound coverage while 
still contributing roughly the same total amount toward their 
employees' health benefits.
1. Limited Wraparound Coverage Offered in Conjunction With Eligible 
Individual Health Insurance (or BHP Coverage) for Persons Who Are Not 
Full-Time Employees
    As under the 2014 proposed regulations, limited coverage that wraps 
around eligible individual health insurance (or BHP coverage) for an 
individual who is not a full-time employee is required to satisfy three 
standards relating to plan eligibility.
i. Employer Obligations With Respect to Full-Time Employees
    First, for each year that wraparound coverage is offered, the 
employer that is the sponsor of the plan offering wraparound coverage, 
or the employer participating in a plan offering wraparound coverage, 
must offer to its full-time employees coverage that: (1) Is 
substantially similar to coverage that the employer would need to offer 
to its full-time employees in order not to be subject to a potential 
assessable payment under the employer shared responsibility provisions 
of section 4980H(a) of the Code, if such provisions were applicable 
(that is, substantially similar to an offer of minimum essential 
coverage (as defined in Code section 5000A(f)) to at least 95 percent 
of its full-time employees (or to all but five of its full-time 
employees, if five is greater than five percent of its full-time 
employees)); (2) provides minimum value (as defined in section 
36B(c)(2)(C)(ii) of the Code); and (3) is reasonably expected to be 
affordable (permitting use of the safe harbor rules for determining 
affordability set forth in 26 CFR 54.4980H-5(e)(2)). The preamble to 
the 2014 proposed regulations stated that, if a plan or issuer 
providing limited wraparound coverage takes reasonable steps to ensure 
that employers disclose necessary information regarding their coverage 
offered and affordability information to the plan or issuer, the plan 
or issuer could rely on reasonable representations by employers 
regarding this information, unless the plan or issuer has specific 
knowledge to the contrary.
    Several commenters requested that, in the context of small 
employers and multiemployer plans, there be an exemption from the 
requirement that, to be considered excepted benefits, the employer 
offer to its full-time employees coverage that is substantially similar 
to coverage that the employer would need to offer pursuant to Code 
section 4980H(a). However, these final excepted benefits regulations 
are designed to allow plan sponsors an

[[Page 13999]]

option to offer additional workers health coverage comparable to that 
which they already offer, rather than to serve as a substitute for 
primary coverage.
    Other commenters asked the Departments to clarify that any Code 
section 4980H-related requirements are met in instances in which the 
employer has no full-time employees. These final regulations clarify 
that, in the event that the employer has no full-time employees, but 
the plan covers retirees (and their dependents), or covers part-time 
employees (and their dependents), the requirements to provide coverage 
that is substantially similar to coverage that the employer would need 
to offer to its full-time employees in order not to be subject to a 
potential assessable payment section 4980H(a) of the Code, that 
provides minimum value, and that is reasonably expected to be 
affordable, are all considered satisfied.
ii. Limited Eligibility
    Second, eligibility for the limited wraparound coverage must be 
limited to employees who are not full-time employees (and their 
dependents), or who are retirees (and their dependents). In the 
preamble to the 2014 proposed regulations, the Departments stated that 
``full-time employees'' would be employees who are reasonably expected 
to work at least an average of 30 hours per week. Plans and issuers 
would not be required to define ``full-time employees'' strictly in 
accordance with the rules of Code section 4980H, but employers could 
rely on the Code section 4980H definition, or any reasonable 
interpretation of who is reasonably expected to work an average of 30 
hours a week, for purposes of this provision. The Departments invited 
comment on this approach.
    Some commenters argued that plan sponsors should be able to offer 
limited coverage that wraps around eligible individual health insurance 
to full-time employees. The Departments do not adopt this change. A 
rationale for treating the wraparound coverage as an excepted benefit 
is that recipients will be able to use this limited type of coverage in 
conjunction with individual coverage purchased through an Exchange 
without being disqualified from claiming the premium tax credit. This 
may be attractive to employers as a means of providing some health 
coverage to employees who may not otherwise have been offered coverage, 
such as part-time employees or retirees. However, this is not intended 
to incentivize or permit employers to fail to offer minimum essential 
coverage to full-time employees, a population to whom employers have 
typically offered coverage.
    One commenter sought clarification that plan sponsors offering 
limited wraparound coverage may rely on a determination of full-time 
employee status at the time of enrollment. The Departments agree that 
employers offering limited wraparound coverage will make determinations 
based on the expected status of an employee in the future as a part-
time employee versus full-time employee. Accordingly, the final 
regulations include a clarification that this standard is met if it is 
reasonably determined at the time of enrollment that the employee will 
on average work fewer than 30 hours per week during the plan year. 
Moreover, for purposes of administering the premium tax credit under 
section 36B of the Code, if it is reasonably determined at the time of 
enrollment that the employee will on average work fewer than 30 hours 
per week during the plan year and therefore the employee is offered 
limited coverage that wraps around eligible individual health 
insurance, but the employee later during the coverage period meets the 
definition of a full-time employee, the coverage will not fail to be 
excepted benefits and the employee will not become ineligible for 
premium tax credits for the remainder of the plan year solely because 
the original reasonable determination proves incorrect. Whether, to be 
reasonable, that determination would need to be changed for future plan 
years will depend on all the facts and circumstances.
    Several commenters sought clarification regarding the definition of 
``dependent.'' Specifically, commenters asked whether the term 
``dependent'' includes ``spouses'' (as the term is defined under 26 CFR 
54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 for purposes of 
chapter 100 of the Code, part 7 of ERISA, and title XXVII of the PHS 
Act), or whether it is limited to ``dependent children'' (as the term 
is defined under Code section 4980H and its implementing regulations). 
These final regulations clarify that, for purposes of excepted 
benefits, the term ``dependent'' is defined by reference to the 
definitions section governing the market reforms (that is, 26 CFR 
54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103) and not the employer 
shared responsibility provisions under Code section 4980H and its 
implementing regulations. Accordingly, spouses may qualify as 
dependents to the extent they are eligible for coverage under the terms 
of the limited wraparound coverage. Moreover, some commenters sought 
clarification as to whether a plan could permit enrollment of a spouse 
beneficiary without enrollment of an employee participant. While 
nothing in these final regulations, nor any other provision of ERISA, 
the Code, or the PHS Act requires plans to enroll spouse beneficiaries 
for coverage (other than COBRA coverage) if the participant does not 
enroll, nothing in these provisions prohibits plans from enrolling such 
a spouse if plans choose to do so.\29\
---------------------------------------------------------------------------

    \29\ See ERISA section 601, Code section 4980B and PHS Act 
section 2201, which requires enrollment of qualified beneficiaries 
(including spouses) after a loss of coverage in connection with a 
qualifying event.
---------------------------------------------------------------------------

iii. Offer of Other Group Health Plan Coverage
    Third, under the 2014 proposed regulations, other group health plan 
coverage, not limited to excepted benefits, would be required to be 
offered to the individuals eligible for the wraparound coverage. Only 
individuals eligible for other group health plan coverage could be 
eligible for the wraparound coverage.
    Some commenters contended that plan sponsors should not be required 
to offer other group health plan coverage to individuals who are not 
full-time employees. This provision does not require employers to offer 
group health plan coverage to workers who are not full-time employees 
but it does limit the ability to offer the wrap-around coverage only to 
workers otherwise eligible for other group health plan coverage. That 
is because this provision is not intended to create an opportunity or 
incentive for employers to discontinue providing group health plan 
coverage and to encourage its employees to obtain coverage through the 
Exchange subsidized through the premium tax credit while still 
receiving meaningful employer-provided health benefits. Further, the 
same standard is applied in order for a health FSA to be an excepted 
benefit, and this provision in the final regulation is intended to 
allow employers to offer a limited benefit, similar to a health FSA.
2. Limited Wraparound Coverage Offered in Conjunction With Multi-State 
Plan Coverage
    For limited coverage that wraps around Multi-State Plan coverage, 
four requirements would be required to be met under the 2014 proposed 
regulations.
i. OPM Review and Approval
    The first of the four standards would require that the limited 
wraparound

[[Page 14000]]

coverage be specifically designed and approved by the Office of 
Personnel Management (OPM) to provide benefits in conjunction with 
coverage under a Multi-State Plan authorized under section 1334 of the 
Affordable Care Act. Several comments sought clarification as to 
whether OPM would be designing limited wraparound coverage, or whether 
that would more appropriately be the role of the plan sponsor or health 
insurance issuer. These final rules include a modification to clarify 
that OPM would not design limited wraparound coverage. Instead, OPM's 
role would be to review and approve such coverage. Moreover, as 
indicated in the preamble to the 2014 proposed regulations, with 
respect to the maintenance of effort standard (discussed below), OPM's 
role is to ensure that group health plans and health insurance issuers 
offering Multi-State Plan wraparound coverage have a reasonable process 
in place for assuring employers meet the criteria set forth in these 
regulations for excepted benefits.
ii. Maintenance of Effort
    The 2014 proposed regulations provided that the employer would have 
had to offer coverage in the plan year that began in 2014 that is 
substantially similar to coverage that the employer would need to have 
offered to its full-time employees in order to not be subject to an 
assessable payment under the employer shared responsibility provisions 
of section 4980H(a) of the Code, if such provisions had been 
applicable. In addition, in the plan year that began in 2014, the 
employer would have had to have offered coverage to a substantial 
portion of full-time employees that provided ``minimum value'' (as 
defined in section 36B(c)(2)(C)(ii) of the Code) and was affordable 
(applying the safe harbor rules for determining affordability set forth 
in 26 CFR 54.4980H-5(e)(2)). Finally, for the duration of the pilot 
program (described later in this preamble), the employer's annual 
aggregate contributions for both primary and limited wraparound 
coverage must be substantially the same as the employer's aggregate 
contributions for coverage offered to full-time employees in 2014. The 
Departments stated in the preamble that they were considering 
interpreting this ``substantially the same'' condition as a percentage 
(for example, 80 or 90 percent) and potentially applying it on a per-
worker basis to allow for fluctuations in an employer's workforce.
    Citing that some employers may have made changes to their coverage 
in 2014 because Exchange coverage was first available in 2014, several 
commenters requested that plan sponsors be permitted to use either 2013 
or 2014 as the base year for this maintenance of effort requirement set 
forth in these second and third requirements for limited coverage that 
wraps around Multi-State Plan coverage. These final regulations adopt 
this suggestion.
    Other comments stated that an employer's annual aggregate 
contribution toward primary and limited wraparound coverage should 
include any assessable payments under Code section 4980H owed by the 
employer. An applicable large employer may become subject to an 
assessable payment if it fails to offer minimum essential coverage to 
its full-time employees and one or more of those employees obtains a 
premium tax credit, or it fails to provide a full-time employee minimum 
essential coverage that provides minimum value and is affordable for 
that employee and that employee obtains a premium tax credit. In 
neither case does the payment of an assessable payment provide coverage 
to the employee or otherwise assist that employee in obtaining 
coverage. Nor does the fact that the failure to provide coverage may 
permit the employee to obtain the premium tax credit mean that the 
resulting fee is contributing toward that employee's health coverage. 
The final regulations, therefore, do not make this change.
    Some comments sought clarification regarding whether the employer's 
annual aggregate contributions for both primary and limited wraparound 
coverage must be substantially the same as the employer's aggregate 
contributions for coverage offered to full-time employees in 2013 or 
2014. Some requested OPM be given discretion to determine whether the 
maintenance of effort standard has been met by each employer. Others 
requested a threshold of 60 percent in determining whether this 
standard has been met. Many factors, including fluctuations in 
workforce size, cost of coverage, and employer contributions towards 
other fringe benefits may affect employer contributions from year to 
year. The final regulations retain the standard set forth in the 2014 
proposed regulations that the employer's annual aggregate contributions 
for both primary and limited wraparound coverage must be substantially 
the same as the employer's aggregate contributions for coverage offered 
to full-time employees in 2014 (or 2013). For this purpose, the 
Departments consider this ``substantially the same'' condition to be 
met if contributions were at least 80 percent of contributions made in 
2013 or 2014, applied on an average, full-time worker basis (to allow 
for fluctuations in an employer's workforce). OPM may make a finding, 
based on all the facts and circumstances, that other employer 
contribution arrangements also meet this standard. OPM may provide 
additional guidance (such as examples and safe harbors) in the future.
    As with coverage that wraps around eligible individual health 
insurance (or that wraps around Basic Health Plan coverage), commenters 
asked the Departments to clarify that any Code section 4980H-related 
requirements are met in instances in which the employer has no full-
time employees. These final regulations adopt a parallel clarification 
for coverage that wraps around Multi-State Plan coverage as for 
coverage that wraps around eligible individual health insurance (or 
that wraps around Basic Health Plan coverage). That is, while these 
final regulations do not permit new employers to provide wraparound 
coverage as an excepted benefit, these final regulations clarify that, 
in the event that the employer has no full-time employees, but the plan 
covers retirees (and their dependents), or covers part-time employees 
(and their dependents), the requirements that, in the plan year that 
began in 2013 or 2014, the employer would have had to have offered 
coverage to a substantial portion of full-time employees that provided 
minimum value and was affordable is met, as is the requirement that, 
for the duration of the pilot program, the employer's annual aggregate 
contributions for both primary and limited wraparound coverage must be 
substantially the same as the employer's aggregate contributions for 
coverage offered to full-time employees in 2013 or 2014.
    For purposes of administering this provision with respect to 
limited wraparound coverage offered in conjunction with Multi-State 
Plan coverage, the Departments had proposed that the term ``full-time 
employee'' means a ``full-time employee'' as defined in 26 CFR 
54.4980H-1(a)(21) who is not in a limited non-assessment period for 
certain employees (as defined in 26 CFR 54.4980H-1(a)(26)). Moreover, 
if a plan or issuer providing limited wraparound coverage takes 
reasonable steps to ensure that employers disclose necessary 
information regarding their coverage offered and contribution levels 
for 2013 or 2014 to the plan or issuer, the plan or issuer may rely on 
reasonable representations by employers regarding this information, 
unless the plan or issuer has specific knowledge to the contrary. 
Consistent with the reporting

[[Page 14001]]

and evaluation criteria described later in this preamble, the 
Departments stated that OPM may verify that plans and issuers have 
reasonable mechanisms in place to ensure that contributing employers 
meet these standards.

E. Reporting

    The fifth and final requirement for limited wraparound coverage to 
qualify as excepted benefits under the 2014 proposed regulations is a 
reporting requirement, for group health plans and group health 
insurance issuers, as well as group health plan sponsors. The final 
regulations adopt the approach outlined in the 2014 proposed 
regulations.
    A self-insured group health plan, or a health insurance issuer 
offering or proposing to offer Multi-State Plan wraparound coverage, 
would report to OPM, in a form and manner specified in OPM guidance, 
information OPM reasonably requires to determine whether the plan or 
issuer qualifies to offer such coverage or complies with the applicable 
requirements of this section.
    In addition, the plan sponsor of any group health plan offering any 
type of limited wraparound coverage would report to HHS, in a form and 
manner specified in guidance, information HHS reasonably requires to 
determine whether the exception for limited wraparound coverage is 
allowing plan sponsors to provide workers with comparable benefits 
whether enrolled in minimum essential coverage under a group health 
plan offered by the plan sponsor, or enrolled in eligible individual 
health insurance, BHP coverage, or Multi-State Plan coverage, with 
additional limited wraparound coverage offered by the plan sponsor, 
without causing an erosion of coverage.
    Commenters requested that there be coordination of any reporting 
requirements with existing reporting requirements and some made 
specific suggestions regarding data elements that should be required 
for reporting. The Departments agree with the principle of non-
duplication and will seek comment on any new reporting requirements 
through the process established by Paperwork Reduction Act of 1995.

F. Pilot Program With Sunset Date

    Under the 2014 proposed regulations, limited wraparound coverage 
would be permitted under a pilot program for a limited time. 
Specifically, this type of wraparound coverage could be offered as 
excepted benefits if it is first offered no later than December 31, 
2017, and ends on the later of: (1) The date that is three years after 
the date wraparound coverage is first offered; or (2) the date on which 
the last collective bargaining agreement relating to the plan 
terminates after the date wraparound coverage is first offered 
(determined without regard to any extension agreed to after the date 
the wraparound coverage is first offered). The 2014 proposed 
regulations invited comments on this time frame for applicability, 
including whether the Departments should have the option to provide for 
an earlier termination date.
    Many commenters cited uncertainty and the lack of lead time as 
negatively impacting full utilization of the pilot program and 
requested a longer implementation period. The Departments agree that 
the timing for publication of these final rules makes 2015 plan year 
implementation impossible or impracticable for most plans. Accordingly, 
these final rules specify that wraparound coverage could be offered as 
excepted benefits if the coverage is first offered no earlier than 
January 1, 2016 and no later than December 31, 2018. The end date is 
unchanged from the proposal, that is the later of: (1) The date that is 
three years after the date wraparound coverage is first offered; or (2) 
the date on which the last collective bargaining agreement relating to 
the plan terminates after the date wraparound coverage is first offered 
(determined without regard to any extension agreed to after the date 
the wraparound coverage is first offered).

III. Economic Impact and Paperwork Burden

A. Summary

    As discussed in detail above, these regulations amend the 
definition of ``limited excepted benefits'' in the group market to 
provide plan sponsors with two options to offer limited wraparound 
coverage to certain individuals. Under the first option, a plan sponsor 
could offer limited benefits provided through a group health plan that 
wraps around eligible individual health insurance to employees who are 
not full-time employees (and their dependents), or who are retirees 
(and their dependents). For this purpose, full-time employees are 
employees who are reasonably expected to work at least an average of 30 
hours per week. Under the second option, the limited wraparound 
coverage that satisfies the requirements outlined in the regulations 
must be approved by OPM and be offered in conjunction with Multi-State 
Plan coverage authorized under section 1334 of the Affordable Care Act. 
Under the first option, the limited benefits would also be permitted to 
wrap around the Basic Health Program authorized under section 1331 of 
the Affordable Care Act.

B. Executive Orders 12866 and 13563--Departments of Labor and HHS

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, and public 
health and safety effects; distributive impacts; and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a 
regulation: (1) Having an annual effect on the economy of $100 million 
or more in any one year, or adversely and materially affecting a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or state, local, or tribal governments or 
communities (also referred to as ``economically significant''); (2) 
creating a serious inconsistency or otherwise interfering with an 
action taken or planned by another agency; (3) materially altering the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. OMB has 
determined that the action is significant within the meaning of section 
3(f)(4) of Executive Order 12866, and the Departments accordingly 
provide the following assessment of its potential benefits and costs.
    The Departments recognize that many plan sponsors provide 
comprehensive health benefits to their workers. One objective of the 
Affordable Care Act is to allow individuals with comprehensive health 
insurance plans to maintain their current level of benefits. Some 
employers are interested in offering wraparound coverage to employees 
who are enrolled in a Multi-State Plan authorized under section 1334 of 
the Affordable Care Act or to part-time employees. These regulations 
provide two options to employers that clarify the circumstances under 
which plan sponsors can provide to their employees such limited 
wraparound coverage that qualifies as an excepted benefit.

[[Page 14002]]

    The cost (and Federal budget impact \30\) of these final 
regulations is difficult to quantify. The Departments solicited 
comments in the regulatory impact analysis section of the preamble to 
the 2014 proposed regulations. Comments were invited generally and on 
specific questions, including: To what degree, if any, might this 
regulation increase employers' propensity to provide health insurance? 
To what extent, if any, this proposed regulation could affect plan 
sponsors' decision making? Are there any particular sectors of the 
economy in which employers will be more or less inclined to pursue 
wraparound coverage programs?
---------------------------------------------------------------------------

    \30\ As with other group health coverage, employer contributions 
to the limited wraparound coverage would be excluded from employee 
income for tax purposes. Similar to the cost of the proposal, the 
budget implications of adding limited wraparound coverage as a form 
of excepted benefits depends on the number of employers that elect 
either option and the number of employees that in turn receive it.
---------------------------------------------------------------------------

    Comments were also invited on the effects of the proposal and the 
Departments requested detailed data that would inform the following 
questions: What will be the impact of limiting the cost of the 
wraparound coverage to $2,500 per employee (and any covered 
dependents)? How many employers offer coverage that provides minimum 
value and is affordable for a substantial portion (under the first 
option) or 95 percent (under the second option) of employees who are 
eligible for coverage? To what extent would premiums for comprehensive 
health coverage change in the presence and absence of this rule?
    No specific data were received in response to this solicitation, 
although several commented that limited conditions under which 
wraparound coverage could be offered were overly restrictive and made 
it of limited use. Others commented that the uncertainty of the life 
span of a time-limited pilot program would minimize uptake of the 
offering of limited wraparound coverage.
    These final regulations generally implement the 2014 proposed 
regulations with marginal change, as discussed above. Both options are 
designed so that wraparound coverage could not replace employer-
sponsored primary group coverage. Under the individual health insurance 
wraparound option, the employer also must offer other group health 
coverage that is not limited to excepted benefits and provides minimum 
value to the class of participants offered the wraparound coverage by 
reason of their employment. Only individuals who are not full-time 
employees and who are eligible for other group health plan coverage may 
be eligible for the wraparound coverage. Also, the employer coverage 
must substantially satisfy the employer shared responsibility 
provisions of Code section 4980H(a), and the coverage would have to be 
affordable for at least 95 percent of full-time employees.
    Under the Multi-State Plan wraparound option, the employer would 
have to offer coverage in the plan year beginning in 2013 or 2014 that 
would have substantially satisfied the employer shared responsibility 
provisions of Code section 4980H(a) if the provision had been 
applicable, provided minimum value, and been affordable for a 
substantial portion of its full-time employees.\31\ The employer's 
annual contributions for both its primary and wraparound coverage must 
be substantial.
---------------------------------------------------------------------------

    \31\ The substantial level was included 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 final regulations permit limited wraparound coverage to be 
excepted benefits if initially offered between January 1, 2016 and 
December 31, 2018, and continuing for the longer of three years or the 
date on which the last collective bargaining agreement relating to the 
group health plan terminates. In addition, the maximum benefit cannot 
exceed the greater of the annual health FSA contribution limit ($2,550 
for 2015), indexed; or 15 percent of the firm's primary plan cost. In 
the 2014 proposed regulations the maximum benefit was the annual health 
FSA contribution limits ($2,550 for 2015), indexed.
    As with the 2014 proposed regulations, the decision to offer the 
limited wraparound coverage remains optional. There is greater 
administrative complexity associated with the wraparound coverage than 
primary coverage alone or primary coverage plus a health FSA which 
offers similar benefits. 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 to more workers, let alone contribute 
to wraparound coverage. Employers may also continue to simply not 
provide employees with affordable, minimum value coverage, allowing 
their workers to purchase coverage and potentially qualify for premium 
tax credits through an Exchange with no additional wraparound benefit, 
and these employers would continue to make any employer shared 
responsibility payments as applicable, resulting in no additional cost 
to the employer or the Federal government.
    The option to offer limited wraparound coverage would not encumber 
any currently existing means by which employers can provide 
comprehensive health insurance coverage to their employees in 
compliance with the Affordable Care Act. Rather, it would clarify two 
additional, alternative means of doing so.
    For the foregoing reasons, the Departments have reached the 
conclusion that the impact of the benefits, costs, and transfers will 
be limited. The Departments do not expect many plans to offer limited 
wraparound coverage, and will monitor usage and impact during the pilot 
program through reporting, as discussed above.

C. Paperwork Reduction Act--Department of Labor and Department of the 
Treasury

    These final regulations are not subject to the requirements of the 
Paperwork Reduction Act of 1995 (PRA 95) (44 U.S.C. 3501 et seq.), 
because it does not contain a collection of information as defined in 
44 U.S.C. 3502(3).

D. Paperwork Reduction Act--Department of HHS

    The final rule is not subject to the requirements of the Paperwork 
Reduction Act of 1995 (PRA 95) (44 U.S.C. 3501 et seq.), because it 
does not contain a collection of information as defined in 44 U.S.C. 
3502(3). An analysis under the PRA will be conducted in the future for 
any future guidance establishing a collection of information related to 
the rule.

E. Regulatory Flexibility Act--Departments of Labor and HHS

    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

[[Page 14003]]

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 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 final 
regulations 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 requested comment on the 
appropriateness of the size standard at the proposed rule phase and 
received no responses.
    Because these final regulations impose no additional costs on 
employers or plans, the Departments believe that they do 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 these final regulations will not have a significant 
economic impact on a substantial number of small entities.

F. Special Analyses--Department of the Treasury

    For purposes of the Department of the Treasury it has been 
determined that this final rule 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 final regulations, and, 
because these final regulations do not impose a collection of 
information on small entities, an analysis under the RFA is not 
required. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking preceding these final regulations was submitted to 
the Small Business Administration for comment on its impact on small 
business.

G. 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 final 
regulations 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.

H. Federalism

    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 final regulations, by clarifying 
policy regarding certain expected benefits options that can be designed 
by employers to support their employees, will 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 continue to 
affirmatively engage in outreach with officials of state and political 
subdivisions regarding excepted benefits and seek their input on any 
federalism implications that they believe may be presented.

I. Congressional Review Act

    These final 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.), which specifies that, before a rule can 
take effect, the Federal agency promulgating the rule shall submit to 
each House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information. 
These final regulations are being transmitted to Congress and the 
Comptroller General for review.

IV. Statutory Authority

    The Department of the Treasury regulations are adopted pursuant to 
the authority contained in sections 7805 and 9833 of the Code.
    The Department of Labor regulations are 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 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 M. Dalrymple,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Approved: March 11, 2015.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
    Signed this 11th day of March, 2015.

[[Page 14004]]


Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: March 11, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: March 11, 2015.
Sylvia Burwell,
Secretary, Department of Health and Human Services

Department of the Treasury

Internal Revenue Service

26 CFR Chapter I

    Accordingly, 26 CFR part 54 is 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:  Authority: 26 U.S.C. 7805. * * *
    Section 54.9831-1 also issued under 26 U.S.C. 9833; * * *


0
Par 2. Section 54.9831-1 is amended by adding paragraph (c)(3)(vii) to 
read as follows:


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

* * * * *
    (c) * * *
    (3) * * *
    (vii) Limited wraparound coverage. Limited benefits provided 
through a group health plan that wrap around eligible individual health 
insurance (or Basic Health Plan coverage described in section 1331 of 
the Patient Protection and Affordable Care Act); or that wrap around 
coverage under a Multi-State Plan described in section 1334 of the 
Patient Protection and Affordable Care Act, collectively referred to as 
``limited wraparound coverage,'' are excepted benefits if all of the 
following conditions are satisfied. For this purpose, eligible 
individual health insurance is individual health insurance coverage 
that is not a grandfathered health plan (as described in section 1251 
of the Patient Protection and Affordable Care Act and 29 CFR 2590.715-
1251), not a transitional individual health insurance plan (as 
described in the March 5, 2014 Insurance Standards Bulletin Series--
Extension of Transitional Policy through October 1, 2016), and does not 
consist solely of excepted benefits (as defined in paragraph (c) of 
this section).
    (A) Covers additional benefits. The limited wraparound coverage 
provides meaningful benefits beyond coverage of cost sharing under 
either the eligible individual health insurance, Basic Health Program 
coverage, or Multi-State Plan coverage. The limited wraparound coverage 
must not provide benefits only under a coordination-of-benefits 
provision and must not consist of an account-based reimbursement 
arrangement.
    (B) Limited in amount. The annual cost of coverage per employee 
(and any covered dependents, as defined in Sec.  54.9801-2) under the 
limited wraparound coverage does not exceed the greater of the amount 
determined under either paragraph (c)(3)(vii)(B)(1) or (2) of this 
section. Making a determination regarding the annual cost of coverage 
per employee must occur on an aggregate basis relying on sound 
actuarial principles.
    (1) The maximum permitted annual salary reduction contribution 
toward health flexible spending arrangements, indexed in the manner 
prescribed under section 125(i)(2). For this purpose, the cost of 
coverage under the limited wraparound 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.
    (2) Fifteen percent of the cost of coverage under the primary plan. 
For this purpose, the cost of coverage under the primary plan and under 
the limited wraparound coverage includes both employer and employee 
contributions towards the coverage and each is determined in the same 
manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (C) Nondiscrimination. All of the conditions of this paragraph 
(c)(3)(vii)(C) are satisfied.
    (1) No preexisting condition exclusion. The limited wraparound 
coverage does not impose any preexisting condition exclusion, 
consistent with the requirements of section 2704 of the PHS Act 
(incorporated by reference into section 9815) and 29 CFR 2590.715-2704.
    (2) No discrimination based on health status. The limited 
wraparound coverage does not discriminate against individuals in 
eligibility, benefits, or premiums based on any health factor of an 
individual (or any dependent of the individual, as defined in Sec.  
54.9801-2), consistent with the requirements of section 9802 and 
section 2705 of the PHS Act (incorporated by reference into section 
9815).
    (3) No discrimination in favor of highly compensated individuals. 
Neither the limited wraparound coverage, nor any other group health 
plan coverage offered by the plan sponsor, fails to comply with section 
2716 of the PHS Act (incorporated by reference into section 9815) or 
fails to be excludible from income for any individual due to the 
application of section 105(h) (as applicable).
    (D) Plan eligibility requirements. Individuals eligible for the 
wraparound coverage are not enrolled in excepted benefit coverage under 
paragraph (c)(3)(v) of this section (relating to health FSAs). In 
addition, the conditions set forth in either paragraph 
(c)(3)(vii)(D)(1) or (2) of this section are met.
    (1) Limited wraparound coverage that wraps around eligible 
individual insurance for persons who are not full-time employees. 
Coverage that wraps around eligible individual health insurance (or 
that wraps around Basic Health Plan coverage) must satisfy all of the 
conditions of this paragraph (c)(3)(vii)(D)(1).
    (i) For each year for which limited wraparound coverage is offered, 
the employer that is the sponsor of the plan offering limited 
wraparound coverage, or the employer participating in a plan offering 
limited wraparound coverage, offers to its full-time employees coverage 
that is substantially similar to coverage that the employer would need 
to offer to its full-time employees in order not to be subject to a 
potential assessable payment under the employer shared responsibility 
provisions of section 4980H(a), if such provisions were applicable; 
provides minimum value (as defined in section 36B(c)(2)(C)(ii)); and is 
reasonably expected to be affordable (applying the safe harbor rules 
for determining affordability set forth in Sec.  54.4980H-5(e)(2)). If 
a plan or issuer providing limited wraparound coverage takes reasonable 
steps to ensure that employers disclose to the plan or issuer necessary 
information regarding their coverage offered and affordability 
information, the plan or issuer is permitted to rely on reasonable 
representations by employers regarding this information, unless the 
plan or issuer has specific knowledge to the contrary. In the event 
that the employer that is the sponsor of the plan offering

[[Page 14005]]

wraparound coverage, or the employer participating in a plan offering 
wraparound coverage, has no full-time employees for any plan year 
limited wraparound coverage is offered, the requirement of this 
paragraph (c)(3)(vii)(D)(1)(i) is considered satisfied.
    (ii) Eligibility for the limited wraparound coverage is limited to 
employees who are reasonably determined at the time of enrollment to 
not be full-time employees (and their dependents, as defined in Sec.  
54.9801-2), or who are retirees (and their dependents, as defined in 
Sec.  54.9801-2). For this purpose, full-time employees are employees 
who are reasonably expected to work at least an average of 30 hours per 
week.
    (iii) Other group health plan coverage, not limited to excepted 
benefits, is offered to the individuals eligible for the limited 
wraparound coverage. Only individuals eligible for the other group 
health plan coverage are eligible for the limited wraparound coverage.
    (2) Limited coverage that wraps around Multi-State Plan coverage. 
Coverage that wraps around Multi-State Plan coverage must satisfy all 
of the conditions of this paragraph (c)(3)(vii)(D)(2). For this 
purpose, the term ``full-time employee'' means a ``full-time employee'' 
as defined in Sec.  54.4980H-1(a)(21) who is not in a limited non-
assessment period for certain employees (as defined in Sec.  54.4980H-
1(a)(26)). Moreover, if a plan or issuer providing limited wraparound 
coverage takes reasonable steps to ensure that employers disclose to 
the plan or issuer necessary information regarding their coverage 
offered and contribution levels for 2013 or 2014 (as applicable), and 
for any year in which limited wraparound coverage is offered, the plan 
or issuer is permitted to rely on reasonable representations by 
employers regarding this information, unless the plan or issuer has 
specific knowledge to the contrary. Consistent with the reporting and 
evaluation criteria of paragraph (c)(3)(vii)(E) of this section, the 
Office of Personnel Management may verify that plans and issuers have 
reasonable mechanisms in place to ensure that contributing employers 
meet these standards.
    (i) The limited wraparound coverage is reviewed and approved by the 
Office of Personnel Management, consistent with the reporting and 
evaluation criteria of paragraph (c)(3)(vii)(E) of this section, to 
provide benefits in conjunction with coverage under a Multi-State Plan 
authorized under section 1334 of the Patient Protection and Affordable 
Care Act. The Office of Personnel Management may revoke approval if it 
determines that continued approval is inconsistent with the reporting 
and evaluation criteria of paragraph (c)(3)(vii)(E) of this section.
    (ii) The employer offered coverage in the plan year that began in 
either 2013 or 2014 that is substantially similar to coverage that the 
employer would need to have offered to its full-time employees in order 
to not be subject to an assessable payment under the employer shared 
responsibility provisions of section 4980H(a), if such provisions had 
been applicable. In the event that a plan that offered coverage in 2013 
or 2014 has no full-time employees for any plan year limited wraparound 
coverage is offered, the requirement of this paragraph 
(c)(3)(vii)(D)(2)(ii) is considered satisfied.
    (iii) In the plan year that began in either 2013 or 2014, the 
employer offered coverage to a substantial portion of full-time 
employees that provided minimum value (as defined in section 
36B(c)(2)(C)(ii)) and was affordable (applying the safe harbor rules 
for determining affordability set forth in Sec.  54.4980H-5(e)(2)). In 
the event that the plan that offered coverage in 2013 or 2014 has no 
full-time employees for any plan year limited wraparound coverage is 
offered, the requirement of this paragraph (c)(3)(vii)(D)(2)(iii) is 
considered satisfied.
    (iv) For the duration of the pilot program, as described in 
paragraph (c)(3)(vii)(F) of this section, the employer's annual 
aggregate contributions for both primary and limited wraparound 
coverage are substantially the same as the employer's total 
contributions for coverage offered to full-time employees in 2013 or 
2014.
    (E) Reporting--(1) Reporting by group health plans and group health 
insurance issuers. A self-insured group health plan, or a health 
insurance issuer, offering or proposing to offer limited wraparound 
coverage in connection with Multi-State Plan coverage pursuant to 
paragraph (c)(3)(vii)(D)(2) of this section reports to the Office of 
Personnel Management (OPM), in a form and manner specified in guidance, 
information OPM reasonably requires to determine whether the plan or 
issuer qualifies to offer such coverage or complies with the applicable 
requirements of this section.
    (2) Reporting by group health plan sponsors. The plan sponsor of a 
group health plan offering limited wraparound coverage under paragraph 
(c)(3)(vii) of this section, must report to the Department of Health 
and Human Services (HHS), in a form and manner specified in guidance, 
information HHS reasonably requires.
    (F) Pilot program with sunset. The provisions of paragraph 
(c)(3)(vii) of this section apply to limited wraparound coverage that 
is first offered no earlier than January 1, 2016 and no later than 
December 31, 2018 and that ends no later than on the later of:
    (1) The date that is three years after the date limited wraparound 
coverage is first offered; or
    (2) The date on which the last collective bargaining agreement 
relating to the plan terminates after the date limited wraparound 
coverage is first offered (determined without regard to any extension 
agreed to after the date limited wraparound coverage is first offered).
* * * * *

Department of Labor

Employee Benefits Security Administration

 29 CFR Chapter XXV

    For the reasons stated in the preamble, the Department of Labor 
amends 29 CFR part 2590 as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
3. The authority citation for Part 2590 continues to read as follows:

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


0
4. Section 2590.732 is amended by adding paragraph (c)(3)(vii) to read 
as follows:


Sec.  2590.732  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (3) * * *
    (vii) Limited wraparound coverage. Limited benefits provided 
through a group health plan that wrap around eligible individual health 
insurance (or Basic Health Plan coverage described in section 1331 of 
the Patient Protection and Affordable Care Act); or that wrap around 
coverage under a Multi-State Plan described in section 1334 of the 
Patient Protection and Affordable Care Act, collectively referred to as 
``limited wraparound coverage,'' are excepted benefits if all of the 
following conditions are satisfied. For this

[[Page 14006]]

purpose, eligible individual health insurance is individual health 
insurance coverage that is not a grandfathered health plan (as 
described in section 1251 of the Patient Protection and Affordable Care 
Act and Sec.  2590.715-1251), not a transitional individual health 
insurance plan (as described in the March 5, 2014 Insurance Standards 
Bulletin Series--Extension of Transitional Policy through October 1, 
2016), and does not consist solely of excepted benefits (as defined in 
paragraph (c) of this section).
    (A) Covers additional benefits. The limited wraparound coverage 
provides meaningful benefits beyond coverage of cost sharing under 
either the eligible individual health insurance, Basic Health Program 
coverage, or Multi-State Plan coverage. The limited wraparound coverage 
must not provide benefits only under a coordination-of-benefits 
provision and must not consist of an account-based reimbursement 
arrangement.
    (B) Limited in amount. The annual cost of coverage per employee 
(and any covered dependents, as defined in Sec.  2590.701-2) under the 
limited wraparound coverage does not exceed the greater of the amount 
determined under either paragraph (c)(3)(vii)(B)(1) or (2) of this 
section. Making a determination regarding the annual cost of coverage 
per employee must occur on an aggregate basis relying on sound 
actuarial principles.
    (1) The maximum permitted annual salary reduction contribution 
toward health flexible spending arrangements, indexed in the manner 
prescribed under section 125(i)(2) of the Code. For this purpose, the 
cost of coverage under the limited wraparound 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.
    (2) Fifteen percent of the cost of coverage under the primary plan. 
For this purpose, the cost of coverage under the primary plan and under 
the limited wraparound coverage includes both employer and employee 
contributions towards the coverage and each is determined in the same 
manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (C) Nondiscrimination. All of the conditions of this paragraph 
(c)(3)(vii)(C) are satisfied.
    (1) No preexisting condition exclusion. The limited wraparound 
coverage does not impose any preexisting condition exclusion, 
consistent with the requirements of section 2704 of the PHS Act 
(incorporated by reference into section 715 of ERISA) and Sec.  
2590.715-2704.
    (2) No discrimination based on health status. The limited 
wraparound coverage does not discriminate against individuals in 
eligibility, benefits, or premiums based on any health factor of an 
individual (or any dependent of the individual, as defined in Sec.  
2590.701-2), consistent with the requirements of section 702 of ERISA 
and section 2705 of the PHS Act (incorporated by reference into section 
715 of ERISA).
    (3) No discrimination in favor of highly compensated individuals. 
Neither the limited wraparound coverage, nor any other group health 
plan coverage offered by the plan sponsor, fails to comply with section 
2716 of the PHS Act (incorporated by reference into section 715 of 
ERISA) or fails to be excludible from income for any individual due to 
the application of section 105(h) of the Code (as applicable).
    (D) Plan eligibility requirements. Individuals eligible for the 
wraparound coverage are not enrolled in excepted benefit coverage under 
paragraph (c)(3)(v) of this section (relating to health FSAs). In 
addition, the conditions set forth in either paragraph 
(c)(3)(vii)(D)(1) or (2) of this section are met.
    (1) Limited wraparound coverage that wraps around eligible 
individual insurance for persons who are not full-time employees. 
Coverage that wraps around eligible individual health insurance (or 
that wraps around Basic Health Plan coverage) must satisfy all of the 
conditions of this paragraph (c)(3)(vii)(D)(1).
    (i) For each year for which limited wraparound coverage is offered, 
the employer that is the sponsor of the plan offering limited 
wraparound coverage, or the employer participating in a plan offering 
limited wraparound coverage, offers to its full-time employees coverage 
that is substantially similar to coverage that the employer would need 
to offer to its full-time employees in order not to be subject to a 
potential assessable payment under the employer shared responsibility 
provisions of section 4980H(a) of the Code, if such provisions were 
applicable; provides minimum value (as defined in section 
36B(c)(2)(C)(ii) of the Code); and is reasonably expected to be 
affordable (applying the safe harbor rules for determining 
affordability set forth in 26 CFR 54.4980H-5(e)(2)). If a plan or 
issuer providing limited wraparound coverage takes reasonable steps to 
ensure that employers disclose to the plan or issuer necessary 
information regarding their coverage offered and affordability 
information, the plan or issuer is permitted to rely on reasonable 
representations by employers regarding this information, unless the 
plan or issuer has specific knowledge to the contrary. In the event 
that the employer that is the sponsor of the plan offering wraparound 
coverage, or the employer participating in a plan offering wraparound 
coverage, has no full-time employees for any plan year limited 
wraparound coverage is offered, the requirement of this paragraph 
(c)(3)(vii)(D)(1)(i) is considered satisfied.
    (ii) Eligibility for the limited wraparound coverage is limited to 
employees who are reasonably determined at the time of enrollment to 
not be full-time employees (and their dependents, as defined in Sec.  
2590.701-2), or who are retirees (and their dependents, as defined in 
Sec.  2590.701-2). For this purpose, full-time employees are employees 
who are reasonably expected to work at least an average of 30 hours per 
week.
    (iii) Other group health plan coverage, not limited to excepted 
benefits, is offered to the individuals eligible for the limited 
wraparound coverage. Only individuals eligible for the other group 
health plan coverage are eligible for the limited wraparound coverage.
    (2) Limited coverage that wraps around Multi-State Plan coverage. 
Coverage that wraps around Multi-State Plan coverage must satisfy all 
of the conditions of this paragraph (c)(3)(vii)(D)(2). For this 
purpose, the term ``full-time employee'' means a ``full-time employee'' 
as defined in 26 CFR 54.4980H-1(a)(21) who is not in a limited non-
assessment period for certain employees (as defined in 26 CFR 54.4980H-
1(a)(26)). Moreover, if a plan or issuer providing limited wraparound 
coverage takes reasonable steps to ensure that employers disclose to 
the plan or issuer necessary information regarding their coverage 
offered and contribution levels for 2013 or 2014 (as applicable), and 
for any year in which limited wraparound coverage is offered, the plan 
or issuer is permitted to rely on reasonable representations by 
employers regarding this information, unless the plan or issuer has 
specific knowledge to the contrary. Consistent with the reporting and 
evaluation criteria of paragraph (c)(3)(vii)(E) of this section, the 
Office of Personnel Management may verify that plans and issuers have 
reasonable mechanisms in place to ensure that contributing employers 
meet these standards.
    (i) The limited wraparound coverage is reviewed and approved by the 
Office of Personnel Management, consistent with the reporting and 
evaluation

[[Page 14007]]

criteria of paragraph (c)(3)(vii)(E) of this section, to provide 
benefits in conjunction with coverage under a Multi-State Plan 
authorized under section 1334 of the Patient Protection and Affordable 
Care Act. The Office of Personnel Management may revoke approval if it 
determines that continued approval is inconsistent with the reporting 
and evaluation criteria of paragraph (c)(3)(vii)(E) of this section.
    (ii) The employer offered coverage in the plan year that began in 
either 2013 or 2014 that is substantially similar to coverage that the 
employer would need to have offered to its full-time employees in order 
to not be subject to an assessable payment under the employer shared 
responsibility provisions of section 4980H(a) of the Code, if such 
provisions had been applicable. In the event that a plan that offered 
coverage in 2013 or 2014 has no full-time employees for any plan year 
limited wraparound coverage is offered, the requirement of this 
paragraph (c)(3)(vii)(D)(2)(ii) is considered satisfied.
    (iii) In the plan year that began in either 2013 or 2014, the 
employer offered coverage to a substantial portion of full-time 
employees that provided minimum value (as defined in section 
36B(c)(2)(C)(ii) of the Code) and was affordable (applying the safe 
harbor rules for determining affordability set forth in 26 CFR 
54.4980H-5(e)(2)). In the event that the plan that offered coverage in 
2013 or 2014 has no full-time employees for any plan year limited 
wraparound coverage is offered, the requirement of this paragraph 
(c)(3)(vii)(D)(2)(iii) is considered satisfied.
    (iv) For the duration of the pilot program, as described in 
paragraph (c)(3)(vii)(F) of this section, the employer's annual 
aggregate contributions for both primary and limited wraparound 
coverage are substantially the same as the employer's total 
contributions for coverage offered to full-time employees in 2013 or 
2014.
    (E) Reporting--(1) Reporting by group health plans and group health 
insurance issuers. A self-insured group health plan, or a health 
insurance issuer, offering or proposing to offer limited wraparound 
coverage in connection with Multi-State Plan coverage pursuant to 
paragraph (c)(3)(vii)(D)(2) of this section reports to the Office of 
Personnel Management (OPM), in a form and manner specified in guidance, 
information OPM reasonably requires to determine whether the plan or 
issuer qualifies to offer such coverage or complies with the applicable 
requirements of this section.
    (2) Reporting by group health plan sponsors. The plan sponsor of a 
group health plan offering limited wraparound coverage under paragraph 
(c)(3)(vii) of this section, must report to the Department of Health 
and Human Services (HHS), in a form and manner specified in guidance, 
information HHS reasonably requires.
    (F) Pilot program with sunset--The provisions of paragraph 
(c)(3)(vii) of this section apply to limited wraparound coverage that 
is first offered no earlier than January 1, 2016 and no later than 
December 31, 2018 and that ends no later than on the later of:
    (1) The date that is three years after the date limited wraparound 
coverage is first offered; or
    (2) The date on which the last collective bargaining agreement 
relating to the plan terminates after the date limited wraparound 
coverage is first offered (determined without regard to any extension 
agreed to after the date limited wraparound coverage is first offered).
* * * * *

Department of Health and Human Services

45 CFR Subtitle A

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

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
5. 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
6. Section 146.145 is amended by adding paragraph (b)(3)(vii) to read 
as follows:


Sec.  146.145  Special rules relating to group health plans.

* * * * *
    (b) * * *
    (3) * * *
    (vii) Limited wraparound coverage. Limited benefits provided 
through a group health plan that wrap around eligible individual health 
insurance (or Basic Health Plan coverage described in section 1331 of 
the Patient Protection and Affordable Care Act); or that wrap around 
coverage under a Multi-State Plan described in section 1334 of the 
Patient Protection and Affordable Care Act, collectively referred to as 
``limited wraparound coverage,'' are excepted benefits if all of the 
following conditions are satisfied. For this purpose, eligible 
individual health insurance is individual health insurance coverage 
that is not a grandfathered health plan (as described in section 1251 
of the Patient Protection and Affordable Care Act and Sec.  147.140 of 
this subchapter), not a transitional individual health insurance plan 
(as described in the March 5, 2014 Insurance Standards Bulletin 
Series--Extension of Transitional Policy through October 1, 2016), and 
does not consist solely of excepted benefits (as defined in paragraph 
(b) of this section).
    (A) Covers additional benefits. The limited wraparound coverage 
provides meaningful benefits beyond coverage of cost sharing under 
either the eligible individual health insurance, Basic Health Program 
coverage, or Multi-State Plan coverage. The limited wraparound coverage 
must not provide benefits only under a coordination-of-benefits 
provision and must not consist of an account-based reimbursement 
arrangement.
    (B) Limited in amount. The annual cost of coverage per employee 
(and any covered dependents, as defined in Sec.  144.103 of this 
subchapter) under the limited wraparound coverage does not exceed the 
greater of the amount determined under either paragraph 
(b)(3)(vii)(B)(1) or (2) of this section. Making a determination 
regarding the annual cost of coverage per employee must occur on an 
aggregate basis relying on sound actuarial principles.
    (1) The maximum permitted annual salary reduction contribution 
toward health flexible spending arrangements, indexed in the manner 
prescribed under section 125(i)(2) of the Internal Revenue Code. For 
this purpose, the cost of coverage under the limited wraparound 
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.
    (2) Fifteen percent of the cost of coverage under the primary plan. 
For this purpose, the cost of coverage under the primary plan and under 
the limited wraparound coverage includes both employer and employee 
contributions towards the coverage and each is determined in the same 
manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (C) Nondiscrimination. All of the conditions of this paragraph 
(b)(3)(vii)(C) are satisfied.
    (1) No preexisting condition exclusion. The limited wraparound 
coverage does not impose any preexisting condition exclusion,

[[Page 14008]]

consistent with the requirements of section 2704 of the PHS Act and 
Sec.  147.108 of this subchapter.
    (2) No discrimination based on health status. The limited 
wraparound coverage does not discriminate against individuals in 
eligibility, benefits, or premiums based on any health factor of an 
individual (or any dependent of the individual, as defined in Sec.  
144.103 of this subchapter), consistent with the requirements of 
section 2705 of the PHS Act.
    (3) No discrimination in favor of highly compensated individuals. 
Neither the limited wraparound coverage, nor any other group health 
plan coverage offered by the plan sponsor, fails to comply with section 
2716 of the PHS Act or fails to be excludible from income for any 
individual due to the application of section 105(h) of the Internal 
Revenue Code (as applicable).
    (D) Plan eligibility requirements. Individuals eligible for the 
wraparound coverage are not enrolled in excepted benefit coverage under 
paragraph (b)(3)(v) of this section (relating to health FSAs). In 
addition, the conditions set forth in either paragraph 
(b)(3)(vii)(D)(1) or (2) of this section are met.
    (1) Limited wraparound coverage that wraps around eligible 
individual insurance for persons who are not full-time employees. 
Coverage that wraps around eligible individual health insurance (or 
that wraps around Basic Health Plan coverage) must satisfy all of the 
conditions of this paragraph (b)(3)(vii)(D)(1).
    (i) For each year for which limited wraparound coverage is offered, 
the employer that is the sponsor of the plan offering limited 
wraparound coverage, or the employer participating in a plan offering 
limited wraparound coverage, offers to its full-time employees coverage 
that is substantially similar to coverage that the employer would need 
to offer to its full-time employees in order not to be subject to a 
potential assessable payment under the employer shared responsibility 
provisions of section 4980H(a) of the Internal Revenue Code, if such 
provisions were applicable; provides minimum value (as defined in 
section 36B(c)(2)(C)(ii) of the Internal Revenue Code); and is 
reasonably expected to be affordable (applying the safe harbor rules 
for determining affordability set forth in 26 CFR 54.4980H-5(e)(2)). If 
a plan or issuer providing limited wraparound coverage takes reasonable 
steps to ensure that employers disclose to the plan or issuer necessary 
information regarding their coverage offered and affordability 
information, the plan or issuer is permitted to rely on reasonable 
representations by employers regarding this information, unless the 
plan or issuer has specific knowledge to the contrary. In the event 
that the employer that is the sponsor of the plan offering wraparound 
coverage, or the employer participating in a plan offering wraparound 
coverage, has no full-time employees for any plan year limited 
wraparound coverage is offered, the requirement of this paragraph 
(b)(3)(vii)(D)(1)(i) is considered satisfied.
    (ii) Eligibility for the limited wraparound coverage is limited to 
employees who are reasonably determined at the time of enrollment to 
not be full-time employees (and their dependents, as defined in Sec.  
144.103 of this subchapter), or who are retirees (and their dependents, 
as defined in Sec.  144.103 of this subchapter). For this purpose, 
full-time employees are employees who are reasonably expected to work 
at least an average of 30 hours per week.
    (iii) Other group health plan coverage, not limited to excepted 
benefits, is offered to the individuals eligible for the limited 
wraparound coverage. Only individuals eligible for the other group 
health plan coverage are eligible for the limited wraparound coverage.
    (2) Limited coverage that wraps around Multi-State Plan coverage. 
Coverage that wraps around Multi-State Plan coverage must satisfy all 
of the conditions of this paragraph (b)(3)(vii)(D)(2). For this 
purpose, the term ``full-time employee'' means a ``full-time employee'' 
as defined in 26 CFR 54.4980H-1(a)(21) who is not in a limited non-
assessment period for certain employees (as defined in 26 CFR 54.4980H-
1(a)(26)). Moreover, if a plan or issuer providing limited wraparound 
coverage takes reasonable steps to ensure that employers disclose to 
the plan or issuer necessary information regarding their coverage 
offered and contribution levels for 2013 or 2014 (as applicable), and 
for any year in which limited wraparound coverage is offered, the plan 
or issuer is permitted to rely on reasonable representations by 
employers regarding this information, unless the plan or issuer has 
specific knowledge to the contrary. Consistent with the reporting and 
evaluation criteria of paragraph (b)(3)(vii)(E) of this section, the 
Office of Personnel Management may verify that plans and issuers have 
reasonable mechanisms in place to ensure that contributing employers 
meet these standards.
    (i) The limited wraparound coverage is reviewed and approved by the 
Office of Personnel Management, consistent with the reporting and 
evaluation criteria of paragraph (b)(3)(vii)(E) of this section, to 
provide benefits in conjunction with coverage under a Multi-State Plan 
authorized under section 1334 of the Patient Protection and Affordable 
Care Act. The Office of Personnel Management may revoke approval if it 
determines that continued approval is inconsistent with the reporting 
and evaluation criteria of paragraph (b)(3)(vii)(E) of this section.
    (ii) The employer offered coverage in the plan year that began in 
either 2013 or 2014 that is substantially similar to coverage that the 
employer would need to have offered to its full-time employees in order 
to not be subject to an assessable payment under the employer shared 
responsibility provisions of section 4980H(a) of the Internal Revenue 
Code, if such provisions had been applicable. In the event that a plan 
that offered coverage in 2013 or 2014 has no full-time employees for 
any plan year limited wraparound coverage is offered, the requirement 
of this paragraph (b)(3)(vii)(D)(2)(ii) is considered satisfied.
    (iii) In the plan year that began in either 2013 or 2014, the 
employer offered coverage to a substantial portion of full-time 
employees that provided minimum value (as defined in section 
36B(c)(2)(C)(ii) of the Internal Revenue Code) and was affordable 
(applying the safe harbor rules for determining affordability set forth 
in 26 CFR 54.4980H-5(e)(2)). In the event that the plan that offered 
coverage in 2013 or 2014 has no full-time employees for any plan year 
limited wraparound coverage is offered, the requirement of this 
paragraph (b)(3)(vii)(D)(2)(iii) is considered satisfied.
    (iv) For the duration of the pilot program, as described in 
paragraph (b)(3)(vii)(F) of this section, the employer's annual 
aggregate contributions for both primary and limited wraparound 
coverage are substantially the same as the employer's total 
contributions for coverage offered to full-time employees in 2013 or 
2014.
    (E) Reporting--(1) Reporting by group health plans and group health 
insurance issuers. A self-insured group health plan, or a health 
insurance issuer, offering or proposing to offer limited wraparound 
coverage in connection with Multi-State Plan coverage pursuant to 
paragraph (b)(3)(vii)(D)(2) of this section reports to the Office of 
Personnel Management (OPM), in a form and manner specified in guidance, 
information OPM reasonably requires to determine

[[Page 14009]]

whether the plan or issuer qualifies to offer such coverage or complies 
with the applicable requirements of this section.
    (2) Reporting by group health plan sponsors. The plan sponsor of a 
group health plan offering limited wraparound coverage under paragraph 
(b)(3)(vii) of this section, must report to the Department of Health 
and Human Services (HHS), in a form and manner specified in guidance, 
information HHS reasonably requires.
    (F) Pilot program with sunset--The provisions of paragraph 
(b)(3)(vii) of this section apply to limited wraparound coverage that 
is first offered no earlier than January 1, 2016 and no later than 
December 31, 2018 and that ends no later than on the later of:
    (1) The date that is three years after the date limited wraparound 
coverage is first offered; or
    (2) The date on which the last collective bargaining agreement 
relating to the plan terminates after the date limited wraparound 
coverage is first offered (determined without regard to any extension 
agreed to after the date limited wraparound coverage is first offered).
* * * * *
[FR Doc. 2015-06066 Filed 3-16-15; 11:15 am]
 BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P