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[Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)]
[Proposed Rules]
[Pages 76931-76944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30010]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG-132751-14]
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-P2]
RIN 0938-AS52

Amendments to Excepted Benefits

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

ACTION: Proposed rules.

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SUMMARY: This document contains proposed rules that would amend the

[[Page 76932]]

regulations regarding excepted benefits under the Employee Retirement 
Income Security Act of 1974, the Internal Revenue Code (the Code), and 
the Public Health Service Act related to limited wraparound coverage. 
Excepted benefits are generally exempt from the requirements that were 
added to those laws by the Health Insurance Portability and 
Accountability Act and the Patient Protection and Affordable Care Act.

DATES: Comments are due on or before January 22, 2015.

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

FOR FURTHER INFORMATION CONTACT: Amy Turner or Beth Baum, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the 
Treasury, at (202) 317-5500; Jacob Ackerman, Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, at (410) 
786-1565.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws, may call the EBSA Toll-Free Hotline at 1-866-444-
EBSA (3272) or visit the Department of Labor's Web site (http://www.dol.gov/ebsa). In addition, information from HHS on private health 
insurance for consumers can be found on the Centers for Medicare & 
Medicaid Services (CMS) 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 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 section 9831(c)(1) of the 
Code) provides that limited benefits must either: (1) Be provided under 
a separate policy, certificate, or contract of insurance; or (2) 
otherwise not be an

[[Page 76933]]

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.
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    The fourth category of excepted benefits is supplemental excepted 
benefits. Such benefits must be: (1) Coverage supplemental to Medicare, 
coverage supplemental to the Civilian Health and Medical Program of the 
Department of Veterans Affairs (CHAMPVA) or to Tricare, or similar 
coverage that is supplemental to coverage provided under a group health 
plan; and (2) provided under a separate policy, certificate, or 
contract of insurance.\14\
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    \14\ 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).\15\ (Subsequent references to the ``Departments'' include 
all three Departments, unless the headings or context indicate 
otherwise.)
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    \15\ 69 FR 78720 (Dec. 30, 2004).
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    On December 24, 2013, the Departments issued additional proposed 
regulations with respect to the second category of excepted benefits, 
limited excepted benefits (2013 proposed regulations).\16\ These 
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 limited circumstances 
to offer, as excepted benefits, coverage that wraps around certain 
individual health insurance coverage in certain circumstances.
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    \16\ 78 FR 77632.
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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).\17\ Consistent with the 2013 proposed regulations, 
the 2014 final regulations eliminated the requirement under the HIPAA 
regulations that participants pay an additional premium or contribution 
for limited-scope vision or dental benefits to qualify as excepted 
benefits. With respect to EAPs, the Departments finalized the proposal 
with one modification related to financing.\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\
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    \17\ 79 FR 59131 (Oct. 1, 2014).
    \18\ The 2014 final regulations do not include the requirement 
set forth in the 2013 proposed regulations that EAP benefits cannot 
be financed by another group health plan in order to qualify as 
excepted benefits. See 79 FR 59134.
    \19\ 79 FR 59131.
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    As explained in the preamble to the 2013 proposed regulations, some 
group health plan sponsors have asked whether certain limited benefits 
that ``wrap around'' employer-sponsored group health plan coverage \20\ 
could be considered an excepted benefit if such benefits are provided 
to employees for whom the employer's group health plan coverage that is 
otherwise offered to them (``primary'' coverage) is unaffordable, and 
who instead obtain major medical coverage through the individual 
market, including through the Affordable Insurance Exchange, or 
``Exchange'' (also called a Health Insurance Marketplace, or 
Marketplace). Specifically, the preamble to the 2013 proposed 
regulations noted that experts suggest that most workers who are 
offered minimum value coverage under their employer's primary group 
health plan will not meet the criteria for that coverage to be 
considered ``unaffordable'' within the meaning of the statute and thus 
will not qualify for the premium tax credit for enrolling in individual 
health coverage through an Exchange.\21\ However, the preamble went on 
to note that coverage under such a primary group health plan may be 
unaffordable for some employees, who might instead purchase individual 
health coverage through an Exchange with a premium tax credit. While 
such individuals might pay lower premiums for such individual health 
coverage through an Exchange than they would pay for major medical 
coverage offered through their employer's group health plan, the 
individual coverage in the Exchange might also provide less generous 
coverage in terms of benefits or a different provider network than the 
coverage provided under their employer's group health plan. The 2013 
proposed regulations intended to permit employers to provide such 
employees with overall coverage that is comparable to the employer's 
group health plan by providing them with limited employer-sponsored 
coverage that would add to and wrap around the individual market 
coverage that the employee purchases through the Exchange. If the 
employer chose to provide such limited employer-sponsored wraparound 
coverage, that coverage would qualify as an excepted benefit and 
therefore would not preclude the employee from obtaining a premium tax 
credit to assist in purchasing the individual coverage through the 
Exchange if the employee was otherwise eligible for a premium tax 
credit.
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    \20\ A group health plan may be sponsored by an employer, an 
employee organization, or both. For simplicity, this preamble 
generally refers to employer-sponsored coverage. However, these 
proposed regulations would be equally applicable to group health 
plans sponsored by employee organizations, or jointly by employers 
and employee organizations.
    \21\ See Congressional Budget Office, CBO and JCT Estimates of 
the Effects of the Affordable Care Act on the Number of People 
Obtaining Employer-Based Insurance, March 2012, at Table 2, 
available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-15-ACA_and_Insurance_2.pdf. See also Carter C. Price 
& Evan Saltzman, Delaying the Employer Mandate, July 2013, available 
at http://www.rand.org/pubs/research_reports/RR411.html..
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    The 2013 proposed regulations outlined requirements under which 
certain employer-sponsored wraparound coverage provided under a group 
health plan would be treated as excepted benefits when offered to 
individuals who could have received the benefits provided in the 
wraparound coverage through their employer's primary group health plan, 
however the primary plan is unaffordable and they

[[Page 76934]]

do not enroll in that primary plan. The 2013 proposed regulations were 
intended to allow a plan sponsor to pursue equity in coverage by 
maintaining a comparable level of benefits for all potential enrollees, 
including not only higher-income workers enrolled in the employer's 
primary group health plan but also lower-income workers, enrolled in 
non-grandfathered individual market coverage. Under the 2013 proposed 
regulations, employer-provided wraparound coverage would constitute 
excepted benefits (limited wraparound coverage) and therefore would not 
disqualify an employee from eligibility for the premium tax credit and 
cost-sharing reductions, if five conditions were met.
    First, under the 2013 proposed regulations, the coverage could wrap 
around only certain coverage provided through the individual market. 
Specifically, the individual health insurance coverage would have to be 
non-grandfathered and could not consist solely of excepted benefits. In 
States that elect to establish a Basic Health Program (BHP), certain 
low-income individuals (for example, those with household income 
between 133% and 200% of the Federal poverty level) who would otherwise 
qualify for a tax credit to obtain a qualified health plan through an 
Exchange 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.
    Second, the 2013 proposed regulations would have required that 
limited wraparound coverage be specifically designed to provide 
benefits beyond those offered by the individual health insurance 
coverage. Specifically, the limited wraparound coverage would have been 
required to provide either benefits that are in addition to essential 
health benefits (EHBs), or reimburse the costs of items and services 
provided by health care providers considered out-of-network under the 
individual health insurance coverage, or both. Additionally, the 2013 
proposed regulations stated that the limited wraparound coverage could, 
but would not be required to, provide benefits to reimburse for 
participants' otherwise applicable cost sharing under the individual 
health insurance policy. Reimbursement for participants' otherwise 
applicable cost sharing could not be its primary purpose since 
Affordable Care Act-compliant individual health insurance policies 
already offer lower cost sharing at higher metal tiers (gold and 
platinum). For the benefits to be considered specifically designed to 
wrap around the individual health insurance coverage, they would have 
to provide additional benefits; the coverage could not, under the 
proposed regulations, provide benefits solely pursuant to a 
coordination-of-benefits provision that simply pays benefits whenever 
the individual health insurance policy does not cover all or part of a 
medical expense.
    The third condition of the 2013 proposed regulations would have 
required the plan sponsor offering the limited wraparound coverage to 
sponsor another group health plan providing minimum value (as defined 
under section 36B(c)(2)(C)(ii) of the Code) for the plan year, referred 
to as the ``primary plan.'' This primary plan would have to be 
affordable for a majority of the employees eligible for the primary 
plan, and only individuals eligible for this primary plan could be 
eligible for the limited wraparound coverage.
    Under the fourth condition set forth in the 2013 proposed 
regulations, the total cost of the employer's limited wraparound 
coverage would have to be limited, so as not to exceed 15 percent of 
the cost of coverage under the employer's primary plan offered to 
employees eligible for the wraparound coverage.\22\ For this purpose, 
the cost of coverage would include both employer and employee 
contributions towards coverage and would be determined in the same 
manner as that in which the applicable premium is calculated under a 
Consolidated Omnibus Reconciliation Act of 1985 (COBRA) continuation 
provision.\23\ This is similar to the standard in the 2007 enforcement 
safe harbor for treating supplemental health insurance coverage as 
excepted benefits, under which the cost of coverage under the 
supplemental policy, certificate, or contract of insurance must not 
exceed 15 percent of the cost of primary coverage.\24\
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    \22\ If an employer provides more than one primary plan option 
(for example, a health maintenance organization option and a 
preferred provider organization option), and one primary plan does 
not satisfy the 15 percent standard but another plan does, the 
Departments stated in the preamble to the 2013 proposed regulations 
that they would consider the 15 percent standard to be met if the 
average value of the primary plan options meets the 15 percent 
standard.
    \23\ Under the COBRA rules, plans are generally permitted to 
charge up to 102 percent of the applicable premium. See Sec.  
4980B(f)(2)(C)(i) of the Code. The cost of coverage for purposes of 
these proposed regulations is 100 percent of the applicable premium, 
not 102 percent of the applicable premium that the plan is generally 
permitted to charge under the COBRA rules. ``Applicable premium'' is 
defined at Sec.  4980B(f)(4) of the Code.
    \24\ The Departments issued parallel guidance regarding 
supplemental health insurance coverage as excepted benefits under 
HIPAA and related legislation. See EBSA Field Assistance Bulletin 
No. 2007-04 (available at http://www.dol.gov/ebsa/pdf/fab2007-4.pdf); CMS Insurance Standards Bulletin 08-01 (available at http://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_08_01_508.pdf); 
and IRS Notice 2008-23 (available at http://www.irs.gov/irb/2008-07_IRB/ar09.html).
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    The fifth and final condition for the limited wraparound coverage 
to qualify as excepted benefits under the 2013 proposed regulations 
relates to nondiscrimination. The limited 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 2705 of the 
PHS Act (incorporated by reference into ERISA section 715 and Code 
section 9815) and its implementing regulations. As explained in the 
preamble to the 2013 proposed regulations, this condition is similar to 
the standard in the 2007 enforcement safe harbor treating supplemental 
health insurance coverage as excepted benefits and rules for Medicare 
supplemental coverage.\25\
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    \25\ 75 FR 77636.
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    To satisfy the fifth condition under the 2013 proposed regulations, 
the limited wraparound coverage also could not impose any preexisting 
condition exclusion, consistent with the requirements of section 2704 
of the PHS Act (as incorporated into ERISA section 715 and Code section 
9815) and its implementing regulations. Finally, both the primary 
coverage and the limited wraparound coverage could not discriminate in 
favor of highly compensated individuals, consistent with the provisions 
of section 2716 of the PHS Act (also incorporated by reference into 
ERISA section 715 and Code section 9815) and section 105(h) of the 
Code, and its implementing regulations at 26 CFR 1.105-11, as 
applicable.\26\ The preamble to the 2013 proposed regulations clarified 
that these limitations were intended to ensure the coverage is 
available regardless of health status and to prevent employers from 
shifting employees with high medical costs to an Exchange.\27\ 
Conditioning excepted benefit status on meeting standards consistent 
with the compensation-based nondiscrimination rules, in combination 
with the

[[Page 76935]]

requirement that the primary plan be affordable for a majority of the 
employees who are eligible for it, was intended to help ensure that 
employers would not be able to use wraparound coverage to send 
excessive numbers of low wage workers to the Exchanges.\28\
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    \26\ Section 2716 of the PHS Act (as incorporated into ERISA and 
the Code) generally applies to insured coverage and section 105(h) 
of the Code and its implementing regulations generally apply to 
self-insured coverage.
    \27\ 78 FR at 77636.
    \28\ Id.
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    After consideration of comments on the 2013 proposed regulations, 
the Departments are publishing these proposed regulations to address 
limited wraparound coverage and solicit comment before promulgation of 
final regulations on limited wraparound benefits.

II. Overview of These Proposed Regulations

    The Departments received general comments on the 2013 proposed 
regulations, as well as on the five conditions for wraparound coverage 
to qualify as excepted benefits. Many commenters suggested that limited 
wraparound coverage should be considered supplemental excepted benefits 
instead of limited excepted benefits, which would eliminate the need 
for the wraparound coverage to not be an integral part of a group 
health plan.\29\ Some commenters suggested a more simplified approach 
to wraparound coverage rather than the five conditions outlined in the 
proposed regulations, such as adopting a more subjective test so that 
reasonable efforts to comply with the conditions to be excepted 
benefits will not cause a plan to fail to qualify as such. Others 
requested that the standards for limited wraparound coverage to qualify 
as excepted benefits track the same standards and safe harbors for 
applicable large employers under section 4980H of the Code and its 
implementing regulations, for ease of administration and consistency.
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    \29\ The Departments note that the exception for supplemental 
excepted benefits is for coverage that is supplemental to coverage 
provided under Medicare or Tricare, or similar supplemental coverage 
provided to coverage under a group health plan. None of these 
circumstances apply here. That is, the limited wraparound coverage 
that is the subject of these proposed regulations is supplemental to 
individual insurance.
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    Many commenters suggested modifications to the second condition of 
the 2013 proposed regulations, requiring that limited wraparound 
coverage be specifically designed to provide benefits beyond those 
offered by the individual health insurance coverage. Some suggested 
that the goal of limited wraparound coverage should be to fill gaps in 
cost sharing, as the individual health insurance policy would provide 
coverage of EHB. Others disagreed, requesting that this condition be 
changed so that cost sharing would not be the primary purpose of the 
wraparound coverage, because individuals who wish to reduce their cost 
sharing can do so by purchasing a higher ``metal level'' of coverage. 
Additionally, commenters questioned how to choose which benefits to 
offer in addition to what is covered under the individual health 
insurance policy without knowing what benefits each employee will 
receive under their individual health insurance coverage. Some 
commenters suggested that benefits provided under the wraparound 
coverage mirror the benefits offered under the employer's primary plan.
    Commenters also recommended changes to the third condition, that 
the plan sponsor offer another, primary group health plan that provides 
minimum value and is affordable for a majority of the employees 
eligible for the primary plan. Some asked that this requirement be 
deleted altogether. Others stated that the ``majority'' test conflicts 
with the 95% test under section 4980H(a) of the Code, and that this 
difference would introduce complexity and confusion, and suggested that 
Form W-2 employee wages and other safe harbor rules under section 4980H 
of the Code and the accompanying regulations be used to compute 
affordability. Some commenters requested that the eligibility test 
exclude part-time employees, Medicaid-eligible employees, and retirees. 
Other commenters asked that wraparound coverage be considered to meet 
this standard if the primary plan is affordable to the majority of 
employees enrolled in the primary plan (as opposed to the majority 
eligible for the primary plan).
    Additionally, commenters addressed the limit that the total cost of 
coverage under the wraparound coverage not exceed 15 percent of the 
cost of coverage under the primary plan. Some commenters suggested 
increasing this percentage, stating that the 15 percent benchmark was 
based on rough Medicare estimates for supplemental coverage and is too 
low to wrap around a bronze or silver plan. Others asked that the limit 
be a simple dollar amount, similar to limits on health savings accounts 
or health FSAs. Additional commenters pointed out that as minimum value 
increases, so does the total cost of the wraparound coverage (and vice 
versa), and that wrapping around individual coverage makes these 
calculations confusing and uncertain.
    After consideration of comments on the 2013 proposed regulations, 
the Departments are publishing these new proposed regulations with 
respect to limited wraparound coverage. These proposed regulations seek 
comment on two options for limited wraparound coverage to be considered 
an excepted benefit. The Departments intend that, after notice and 
comment, one or both options could be finalized. (That is, they are not 
necessarily alternatives and, therefore, could be implemented side by 
side).
    The regulations include a sunset date and, therefore, would operate 
as a pilot program. While some elements of this proposal are the same 
as those in the previous proposal, this new proposal contains changes 
in response to suggestions and adds new elements for reporting and data 
collection to gather information to inform future rulemaking.

A. Requirements of These New Proposed Regulations

    These proposed regulations 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 (limited wraparound coverage) constitute excepted benefits. For 
this purpose, ``eligible individual health insurance'' is individual 
health insurance coverage that is not a grandfathered health plan,\30\ 
not a transitional individual health insurance market plan,\31\ and 
does not consist solely of excepted benefits.
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    \30\ See section 1251 of the Affordable Care Act, 29 CFR 
2590.715-1251, and 45 CFR 147.140.
    \31\ 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.
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1. Covers Additional Benefits
    The limited wraparound coverage would have to be specifically 
designed to wrap around eligible individual health insurance.\32\ That 
is, the limited wraparound coverage would have to provide meaningful 
benefits beyond coverage of cost sharing under the eligible individual 
health insurance. For example, the limited wraparound coverage could 
provide coverage for expanded in-network medical clinics or providers, 
or provide benefits that are not EHB and that are not covered under

[[Page 76936]]

the eligible individual health insurance. The limited wraparound 
coverage would not be permitted to provide benefits solely under a 
coordination-of-benefits provision and could not be solely an account-
based reimbursement arrangement. Limited wraparound coverage that 
covers solely cost sharing is not permissible 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). Because the proposed regulations would 
permit certain eligible individuals to select any eligible individual 
health insurance (that is, individual health insurance coverage that is 
not a grandfathered health plan, not a transitional individual health 
insurance market plan, and does not consist solely of excepted 
benefits), and recognizing the complications some plan sponsors might 
encounter in determining what benefits or providers are not covered 
under that individual policy, the Departments invite comment on safe 
harbors standardizing the benefits in the limited wraparound coverage 
that could be established under this second proposed requirement.
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    \32\ In States that elect to establish a Basic Health Program 
(BHP), certain low-income individuals (for example, those with 
household income between 133% and 200% of the Federal poverty level) 
who would otherwise qualify for a tax credit to obtain a qualified 
health plan through an Exchange will instead be enrolled in coverage 
through the BHP. Therefore, the Departments invite comments on how 
an employer might make wraparound coverage available to BHP 
enrollees.
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2. Limited in Amount
    The second requirement is that the limited wraparound coverage be 
limited in amount. For this purpose, 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 is $2,500 in 2014, indexed in the manner prescribed under 
section 125(i)(2) of the Code, 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 bright-line $2,500 limitation 
is intended to be simpler to administer than the 15 percent cap set 
forth in the 2013 proposed regulations.
3. Nondiscrimination
    The limited wraparound coverage must meet three requirements 
relating to nondiscrimination in order to qualify as excepted benefits. 
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.\33\ 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.\34\ 
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).
---------------------------------------------------------------------------

    \33\ 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 regarding the 
prohibition against offering employees with high claims risk a 
choice between enrollment in its standard group health plan or cash.
    \34\ 26 CFR 54.9802-1, 29 CFR 2590.702, and 45 CFR 146.121.
---------------------------------------------------------------------------

4. Plan Eligibility Requirements
    The fourth requirement to qualify as excepted benefits would be 
that individuals eligible for the limited wraparound coverage cannot be 
enrolled in excepted benefit coverage that is a health FSA. In 
addition, plans must comply with one of two alternative sets of 
standards relating to eligibility and benefits. One set of plan 
eligibility requirements applies to wraparound benefits offered in 
conjunction with eligible individual health insurance for persons who 
are not full-time employees. A separate set of standards applies to 
coverage that wraps around certain Multi-State Plan coverage.
    a. Eligible individual health insurance for individuals who are not 
full-time employees
    Limited coverage that wraps around eligible individual health 
insurance for an individual who is not a full-time employee must 
satisfy three standards relating to plan eligibility. 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 
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 (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 necessary information regarding 
their coverage offered and affordability information 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. 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). For this purpose, the Departments propose that ``full-time 
employees'' would be employees who are reasonably expected to work at 
least an average of 30 hours per week. The Departments proposal would 
not require plans and issuers to define ``full-time employees'' 
strictly in accordance with the rules of section 4980H of the Code. 
Because this proposal is for part-time employees, some employers who 
wish to take advantage of this excepted benefits option may be exempt 
from Code 4980H and may not already be operating under that detailed 
set of rules. The Departments intend that employers could rely on the 
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 affecting part-time employees and invite comment on this 
approach.
    Third, other group health plan coverage, not limited to excepted 
benefits, must be offered to the individuals eligible for the 
wraparound coverage. Only individuals eligible for other group health 
plan coverage may be eligible for the wraparound coverage. This third 
requirement is consistent with the requirement for a health FSA to 
qualify as excepted benefits under the Departments' excepted benefits 
regulations.\35\
---------------------------------------------------------------------------

    \35\ See 26 CFR 54.9831-1(c)(3)(v); 29 CFR 2590.732(c)(3)(v); 45 
CFR 146.145(b)(3)(v).
---------------------------------------------------------------------------

    b. Multi-State Plan coverage

[[Page 76937]]

    For Multi-State Plan coverage limited wraparound coverage, four 
requirements must be satisfied. The first of the four standards 
requires that the limited wraparound 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. The 
Departments anticipate that health insurance issuers with whom OPM 
contracts to offer Multi-State Plans will be in the best position to 
offer this type of limited wraparound coverage. OPM may revoke approval 
if it determines that continued approval is inconsistent with the 
reporting and evaluation criteria in the proposed regulations. Second, 
the employer must have offered coverage in the plan year that begins 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 (that is, substantially similar to an 
offer of minimum essential coverage (as defined in section 5000A(f) of 
the Code) 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). Third, in the plan year that 
begins in 2014, the employer must 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)). Fourth, 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 2014. The Departments are considering interpreting this 
``substantially the same'' condition as a percentage (e.g., 80 or 90 
percent) and potentially applying it on a per-worker basis to allow for 
fluctuations in an employer's workforce. The Departments seek comment 
on such an interpretation, as well as on all aspects of this 
maintenance of effort condition.
    For purposes of administering this provision, with respect to 
limited wraparound coverage offered in conjunction with Multi-State 
Plan coverage, the Departments propose 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 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 and evaluation criteria described later 
in this preamble, OPM may verify that plans and issuers have reasonable 
mechanisms in place to ensure that contributing employers meet these 
standards.
5. Reporting
    The fifth and final requirement for limited wraparound coverage to 
qualify as excepted benefits is a reporting requirement, for group 
health plans and group health insurance issuers, as well as group 
health plan sponsors.
    A self-insured group health plan, or a health insurance issuer 
offering or proposing to offer Multi-State Plan wraparound coverage, 
reports 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 
either limited wraparound coverage that wraps around eligible 
individual health insurance or Multi-State Plan coverage must report to 
HHS, in a form and manner specified in guidance, information HHS 
reasonably requires to determine whether the exception for limited 
wraparound coverage under these proposed regulations 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 a qualified health plan with additional limited 
wraparound coverage offered by the plan sponsor, without causing an 
erosion of coverage.

B. Pilot Program With Sunset Date

    Under these 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 
to coverage that is first offered no later than December 31, 2017 and 
that 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 Departments invite comments on this 
time frame for applicability, including whether the Departments should 
have the option to provide for an earlier termination date.

C. Comment Solicitation

    The Departments invite comments on these proposed regulations 
generally, and on the specific issues identified earlier in this 
preamble. The Departments also seek comments on the special 
circumstances of small businesses that are not subject to section 4980H 
of the Code. Small employers may qualify to purchase coverage through 
the Small-Business Health Options Program (SHOP) in their State, or 
they may elect to buy coverage in their state's small group market 
outside of the SHOP. Small businesses, like other employers, can also 
contribute towards a health savings account (HSA) under section 223 of 
the Code, which may be used in combination with a high deductible 
health plan (HDHP). In addition, the Departments invite comments on 
whether modifications to health FSAs or other existing policies 
tailored to the needs of small businesses may also be beneficial to 
employers and employees.

III. Economic Impact and Paperwork Burden

A. Summary

    As discussed in detail above, these proposed regulations would 
amend the definition of ``limited excepted benefits'' to provide plan 
sponsors with two mutually exclusive options to offer limited 
wraparound coverage to certain individuals. Under the first option, 
plan sponsors 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

[[Page 76938]]

Plan coverage authorized under section 1334 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, seasonal, or part-year 
employees. These proposed regulations provide two options to employers 
that clarify the circumstances under which plan sponsors can provide 
such limited wraparound coverage to their employees.
    The cost (and Federal budget impact \36\) of this proposal is 
difficult to quantify, because it is unclear how many plan sponsors 
will be eligible to offer and how many employees will be covered by 
limited wraparound benefits. It is important to note that the cost of 
the proposed limited wraparound coverage is limited by the proposed 
conditions on its availability.
---------------------------------------------------------------------------

    \36\ 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.
---------------------------------------------------------------------------

    For example, in order to qualify as limited excepted benefits under 
the individual coverage option, limited wraparound coverage can be 
offered only to individuals who are not full-time employees (and their 
dependents) or who are retirees (and their dependents), and can only 
wrap around eligible individual health insurance.\37\ The limited 
wraparound coverage must provide meaningful benefits beyond coverage of 
cost sharing under the individual health insurance coverage.
---------------------------------------------------------------------------

    \37\ As described earlier in this preamble, ``eligible 
individual health insurance'' is individual health insurance 
coverage is not a grandfathered health plan, not a transitional 
individual health insurance market plan, and does not consist solely 
of excepted benefits.
---------------------------------------------------------------------------

    Plan designs will be limited by nondiscrimination rules aimed at 
preventing plan sponsors from discriminating in favor of highly 
compensated employees or offering different benefits for workers along 
certain other dimensions such as health status. The total cost of the 
wraparound coverage per employee (and any covered dependents) under 
both options is limited to $2,500 indexed in the manner prescribed 
under section 125(i)(2) of the Code.
    Under the Multi-State Plan wraparound 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. As part of the approval process, OPM will require 
the wraparound coverage to provide meaningful benefits other than 
coverage of cost sharing under the Multi-State Plan.\38\
---------------------------------------------------------------------------

    \38\ For example, the wraparound coverage may provide coverage 
for expanded in-network medical clinics or providers, or provide 
benefits that are not essential health benefits that are not covered 
under the Multi-State Plan.
---------------------------------------------------------------------------

    Coverage under both options applies to limited wraparound coverage 
that is first offered no later than December 31, 2017, and that 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 the wraparound coverage is first offered.
    Both options are designed so that wraparound coverage could not 
replace employer-sponsored primary group coverage. Under the individual 
coverage 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 
workers 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 responsibility provisions of 
section 4980H(a) of the Code (whether applicable or not), and the 
coverage would have to be affordable for at least 95% of full-time 
employees.
    Under the Multi-State Plan option, the employer would have to offer 
coverage in the plan year beginning in 2014 that would have 
substantially satisfied the employer responsibility provisions of 
section 4980H(a) of the Code if the provision had been applicable, 
provided minimum value, and been affordable for a substantial portion 
of its full-time employees.\39\ The employer's annual contributions for 
both its primary and wraparound coverage must be substantial (e.g., at 
least 80% or 90% of the employer's total contributions for coverage 
offered to full-time employees in 2014).
---------------------------------------------------------------------------

    \39\ The substantial level was proposed to help minimize the 
implications for the primary plan's risk pool by preventing a large 
number of low-wage workers from leaving the primary plan for 
Marketplace coverage.
---------------------------------------------------------------------------

    Another factor in assessing the proposal's cost is that the 
decision to offer the limited wraparound coverage is 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

[[Page 76939]]

employees with affordable, minimum value coverage, allowing their 
workers to purchase coverage and potentially qualify for premium tax 
credits in the Marketplace with no additional wraparound benefit, and 
these employers would continue to pay any shared responsibility 
payments as applicable, resulting in no additional cost to the employer 
or the Federal government.
    This proposed regulation 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. 
In light of this, the Departments invite comment on to what degree, if 
any, might this regulation increase employers' propensity to provide 
health insurance. Existing rules against discrimination in favor of 
highly compensated employees would limit employer's decisions. The 
Departments invite comment on to what extent, if any, this proposed 
regulation could affect plan sponsors' decision making. Employers' (and 
their employees') economic incentive, if any, to pursue a program of 
wrap coverage will depend importantly on the demographics of each 
employer's work force--that is, the distribution of their employees by 
part-time, seasonal, and temporary employment status, and by pay and 
income. In light of this, the Departments invite comment on whether 
there are particular sectors of the economy in which employers will be 
more or less inclined to pursue wraparound coverage programs.
    The Departments seek comment on the other effects of the proposal. 
Specifically, the Departments request 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?

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

    The proposed 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).

D. Paperwork Reduction Act--Department of HHS

    The proposed 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 for any 
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 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 this proposed rule on 
small plans is an appropriate substitute for evaluating the effect on 
small entities. The definition of small entity considered appropriate 
for this purpose differs, however, from a definition of small business 
that is based on size standards promulgated by the Small Business 
Administration (13 CFR 121.201) pursuant to the Small Business Act (15 
U.S.C. 631 et seq.). The Departments therefore request comments on the 
appropriateness of the size standard used in evaluating the impact of 
this proposed rule on small entities.
    Because the proposed rule would impose no additional costs on 
employers or plans, the Departments believe that it would not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, pursuant to section 605(b) of the RFA, the Departments 
hereby certify that the proposed rule, if promulgated, would 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 notice of proposed rulemaking is not a significant 
regulatory action as defined in Executive Order 12866, as supplemented 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. It has also been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these proposed regulations, and, because these proposed regulations do 
not impose a collection of information on small entities, an analysis 
under the RFA is not required. Pursuant to section 7805(f) of the Code, 
this notice of proposed rulemaking has been submitted to the Small 
Business Administration for comment on its impact on small business.

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 proposed rules 
do not include any federal mandate that may result in expenditures by 
State, local, or tribal governments, or the private sector, which may 
impose an annual burden of $100 million adjusted for inflation since 
1995.

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

[[Page 76940]]

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

I. Congressional Review Act

    This proposed rule is 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, 
and has been transmitted to Congress and the Comptroller General for 
review.

IV. Statutory Authority

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

List of Subjects

26 CFR Part 54

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

29 CFR Part 2590

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

45 CFR Part 146

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

    Signed this 17th day of December, 2014.
John M. Dalrymple,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Signed this 18th day of December 2014.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: December 17, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: December 17, 2014.
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 proposed to be amended as follows:

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
Paragraph 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 either ``eligible 
individual health insurance'' or coverage under a Multi-State Plan 
(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.  54.9815-
1251), not a transitional individual health insurance market 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 or Multi-State Plan 
coverage. The wraparound coverage must not provide benefits only under 
a coordination-of-benefits provision and must not merely be an account-
based reimbursement arrangement.
    (B) Limited in amount. The annual cost of coverage per employee 
(and any covered dependents) under the limited wraparound coverage does 
not exceed the maximum annual salary reduction contributions toward 
health flexible spending arrangements, which is $2,500 for 2014, 
indexed in the manner prescribed under section 125(i)(2). For this 
purpose, the cost of coverage includes both employer and employee 
contributions towards coverage and is determined in the same manner as 
the applicable premium is calculated under a COBRA continuation 
provision.
    (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), consistent with the 
requirements of section 9802 and Sec.  54.9802-1, and section 2705 of 
the PHS Act (incorporated by reference into section 9815) and Sec.  
54.9815-2705.
    (3) No discrimination in favor of highly compensated individuals. 
Neither the limited wraparound coverage, nor any other group health

[[Page 76941]]

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 offered in conjunction with 
individual insurance for persons who are not full-time employees. 
Wraparound benefits offered in conjunction with eligible individual 
health insurance satisfies all of the following requirements--
    (i) For each year for which 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, 
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 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.
    (ii) Eligibility for the wraparound coverage is limited 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.
    (iii) Other group health plan coverage, not limited to excepted 
benefits, is offered to the individuals eligible for the wraparound 
coverage. Only individuals eligible for the other group health plan 
coverage are eligible for the wraparound coverage.
    (2) Limited wraparound coverage offered in conjunction with Multi-
State Plan coverage. Limited wraparound coverage offered in conjunction 
with Multi-State Plan coverage satisfies 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 2014 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 specifically designed, 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 has offered coverage in the plan year that begins 
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), if such provisions had 
been applicable.
    (iii) In the plan year that begins in 2014, the employer has 
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)).
    (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 wraparound coverage are 
substantially the same as the employer's total contributions for 
coverage offered to full-time employees in 2014.
    (E) Reporting--(1) Reporting by group health plans and group health 
insurance issuers. A self-insured plan, or a health insurance issuer, 
offering or proposing to offer Multi-State Plan wraparound 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 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 later than December 31, 2017 and that 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 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 
proposes to amend 29 CFR part 2590 as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

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

    Authority: 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.

[[Page 76942]]

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
2. 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 either ``eligible 
individual health insurance'' or coverage under a Multi-State Plan 
(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.  2590.715-
1251), not a transitional individual health insurance market 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 or Multi-State Plan 
coverage. The wraparound coverage must not provide benefits only under 
a coordination-of-benefits provision and must not merely be an account-
based reimbursement arrangement.
    (B) Limited in amount. The annual cost of coverage per employee 
(and any covered dependents) under the limited wraparound coverage does 
not exceed the maximum annual salary reduction contributions toward 
health flexible spending arrangements, which is $2,500 for 2014, 
indexed in the manner prescribed under section 125(i)(2) of the Code. 
For this purpose, the cost of coverage includes both employer and 
employee contributions towards coverage and is determined in the same 
manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (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), consistent with the 
requirements of section 702 of ERISA and Sec.  2590.715-702, and 
section 2705 of the PHS Act (incorporated by reference into section 715 
of ERISA) and Sec.  2590.715-2705.
    (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 offered in conjunction with 
individual insurance for persons who are not full-time employees. 
Wraparound benefits offered in conjunction with eligible individual 
health insurance satisfies all of the following requirements--
    (i) For each year for which 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, 
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.
    (ii) Eligibility for the wraparound coverage is limited 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.
    (iii) Other group health plan coverage, not limited to excepted 
benefits, is offered to the individuals eligible for the wraparound 
coverage. Only individuals eligible for the other group health plan 
coverage are eligible for the wraparound coverage.
    (2) Limited wraparound coverage offered in conjunction with Multi-
State Plan coverage. Limited wraparound coverage offered in conjunction 
with Multi-State Plan coverage satisfies 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 2014 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 specifically designed, 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

[[Page 76943]]

continued approval is inconsistent with the reporting and evaluation 
criteria of paragraph (c)(3)(vii)(E) of this section.
    (ii) The employer has offered coverage in the plan year that begins 
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.
    (iii) In the plan year that begins in 2014, the employer has 
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)).
    (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 wraparound coverage are 
substantially the same as the employer's total contributions for 
coverage offered to full-time employees in 2014.
    (E) Reporting--(1) Reporting by group health plans and group health 
insurance issuers. A self-insured plan, or a health insurance issuer, 
offering or proposing to offer Multi-State Plan wraparound 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 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 later than December 31, 2017 and that 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 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 proposes to amend 45 CFR part 146 as follows:

PART 146 --REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

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

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

0
2. Section 146.145 is amended by 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 either ``eligible 
individual health insurance'' or coverage under a Multi-State Plan 
(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 market 
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 or Multi-State Plan 
coverage. The wraparound coverage must not provide benefits only under 
a coordination-of-benefits provision and must not merely be an account-
based reimbursement arrangement.
    (B) Limited in amount. The annual cost of coverage per employee 
(and any covered dependents) under the limited wraparound coverage does 
not exceed the maximum annual salary reduction contributions toward 
health flexible spending arrangements, which is $2,500 for 2014, 
indexed in the manner prescribed under section 125(i)(2) of the Code. 
For this purpose, the cost of coverage includes both employer and 
employee contributions towards coverage and is determined in the same 
manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (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, 
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), consistent with the 
requirements section 2705 of the PHS Act and Sec.  146.121.
    (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 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 offered in conjunction with 
individual insurance for persons who are not full-time employees. 
Wraparound benefits offered in conjunction with eligible individual 
health insurance satisfies all of the following requirements--
    (i) For each year for which 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, 
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

[[Page 76944]]

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.
    (ii) Eligibility for the wraparound coverage is limited 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.
    (iii) Other group health plan coverage, not limited to excepted 
benefits, is offered to the individuals eligible for the wraparound 
coverage. Only individuals eligible for the other group health plan 
coverage are eligible for the wraparound coverage.
    (2) Limited wraparound coverage offered in conjunction with Multi-
State Plan coverage. Limited wraparound coverage offered in conjunction 
with Multi-State Plan coverage satisfies 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 2014 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 specifically designed, 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 has offered coverage in the plan year that begins 
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.
    (iii) In the plan year that begins in 2014, the employer has 
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)).
    (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 wraparound coverage are 
substantially the same as the employer's total contributions for 
coverage offered to full-time employees in 2014.
    (E) Reporting--(1) Reporting by group health plans and group health 
insurance issuers. A self-insured plan, or a health insurance issuer, 
offering or proposing to offer Multi-State Plan wraparound 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 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 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 to determine whether the exception 
for limited wraparound coverage under this paragraph (b)(3)(vii) 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 a qualified health plan with 
additional limited wraparound coverage offered by the plan sponsor, 
without the causing an erosion of coverage.
    (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 later than December 31, 2017 and that 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 wraparound coverage is first offered).
* * * * *
[FR Doc. 2014-30010 Filed 12-19-14; 11:15 am]
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P
```