Federal Register, Volume 79 Issue 190 (Wednesday, October 1, 2014)

[Federal Register Volume 79, Number 190 (Wednesday, October 1, 2014)]
[Rules and Regulations]
[Pages 59130-59137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23323]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[T.D. 9697]
RIN 1545-BL90

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB60

DEPARTMENT OF HEALTH AND HUMAN SERVICES

[CMS-9946-F]

45 CFR Part 146

RIN 0938-AS16

Amendments to Excepted Benefits

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

ACTION: Final rules.

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SUMMARY: This document contains final regulations that amend the
regulations regarding excepted benefits under the Employee Retirement
Income Security Act of 1974, the Internal Revenue Code (the Code), and
the Public Health Service Act. Excepted benefits are generally exempt
from the health reform requirements that were added to those laws by
the Health Insurance Portability and Accountability Act and the Patient
Protection and Affordable Care Act. In addition, eligibility for
excepted benefits does not preclude an individual from eligibility for
a premium tax credit under section 36B of the Code if an individual
chooses to enroll in coverage under a Qualified Health Plan through an
Affordable Insurance Exchange. These regulations finalize some but not
all of the proposed rules with minor modifications; additional guidance
on limited wraparound coverage is forthcoming.

DATES: Effective date. These final regulations are effective on
December 1, 2014.
Applicability date. These final regulations apply to group health
plans and group health insurance issuers for plan years beginning on or
after January 1, 2015.

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 (301)
492-4179.
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.

[[Page 59131]]

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
integral part of a group health plan, whether insured or self-insured.
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\11\ 26 CFR 54.9831-1(c)(3)(v); 29 CFR 2590.732(c)(3)(v); 45 CFR
146.145(b)(3)(v).
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The third category of excepted benefits, referred to as
``noncoordinated excepted benefits,'' includes both coverage for only a
specified disease or illness (such as cancer-only policies), and
hospital indemnity or other fixed indemnity insurance. 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.\12\
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\12\ 26 CFR 54.9831-1(c)(4); 29 CFR 2590.732(c)(4); 45 CFR
146.145(b)(4). See also Q7 in FAQs about Affordable Care Act
Implementation Part XI, available at http://www.dol.gov/ebsa/faqs/faq-aca11.html.
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The fourth category of excepted benefits is supplemental excepted
benefits. Such benefits must be: (1) Coverage supplemental to Medicare,
coverage supplemental to the Civilian Health and Medical Program of the
Department of Veterans Affairs (CHAMPVA) or to Tricare, or similar
coverage that is supplemental to coverage provided under a group health
plan; and (2) provided under a separate policy, certificate, or
contract of insurance.\13\
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\13\ 26 CFR 54.9831-1(c)(5); 29 CFR 2590.732(c)(5); 45 CFR
146.145(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).\14\ (Subsequent references to the ``Departments'' include
all three Departments, unless the headings or context indicate
otherwise.) On December 24, 2013, the Departments issued proposed
regulations with respect to the second category of excepted benefits,
limited excepted benefits (2013 proposed regulations).\15\ The 2013
proposed regulations proposed to: (1) Eliminate the requirement that
participants pay an additional premium or contribution for limited-
scope vision or dental benefits to qualify as benefits that are not an
integral part of the plan; (2) set forth the criteria under which
employee assistance programs (EAPs) 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. The Departments stated that, until rulemaking is
finalized, through at least 2014, for purposes of enforcing the
provisions of title XXVII of the PHS Act, part 7 of ERISA, and chapter
100 of the Code, the Departments will consider dental and vision
benefits and EAP benefits meeting the conditions of the 2013 proposed
regulations to qualify as excepted benefits.
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\14\ 69 FR 78720 (Dec. 30, 2004).
\15\ 78 FR 77632.
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After consideration of comments on the 2013 proposed regulations,
the Departments are publishing final regulations regarding dental and
vision benefits and EAP benefits. The Departments also intend to
publish regulations that address limited wraparound coverage in the
future, taking into account the extensive comments received on this
issue.

II. Overview of the Final Regulations

A. Dental and Vision Benefits

Under the HIPAA regulations, vision and dental benefits are
excepted if they are limited in scope (described as benefits,
substantially all of which are for treatment of the eyes or mouth,
respectively) and are either: (1) Provided under a separate policy,
certificate, or contract of insurance; or (2) are otherwise not an
integral part of a group health plan. While only insured coverage may
qualify under the first test, both insured and self-insured coverage
may qualify under the second test. The HIPAA regulations provided that
benefits are not an integral part of a plan if participants have the
right to elect not to receive coverage for the benefits, and, if
participants elect to receive coverage for such benefits, they pay an
additional premium or contribution for the coverage. By contrast,
health FSA benefits could qualify as excepted benefits without any
participant contribution under the HIPAA regulations.\16\
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\16\ Under the HIPAA regulations, benefits provided under a
health FSA are only excepted for a class of participants if other
group health coverage, not limited to excepted benefits, is made
available for the year to the class of participants; and the
arrangement is structured so that the maximum benefit payable to any
participant in the class for a year does not exceed an amount
specified in the regulations.
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As stated in the preamble to the 2013 proposed regulations,
following enactment of the Affordable Care Act, various stakeholders
asked the Departments to amend the HIPAA regulations in order to remove
conditions for limited-scope vision and dental benefits to be treated
as excepted benefits. Specifically, some employers represented that,
although their vision and dental benefits complied with the pre-
Affordable Care Act requirements in title XXVII of the PHS Act, part 7
of ERISA, and chapter 100 of the Code (such as the nondiscrimination
and preexisting condition exclusion provisions), compliance with
certain Affordable Care Act provisions presented additional challenges.
These employers argued that, where employers are providing such
benefits on a self-insured basis and without a contribution from
employees, employers should not be required to charge a nominal
contribution from participants simply for the benefits to qualify as
excepted benefits. In some cases, the cost of collecting the nominal
contribution would be greater than the contribution itself. Moreover,
they pointed out that employers providing dental and vision benefits
through a separate insurance policy are not required to charge a
participant any premium or contribution in order for the dental or
vision benefits to be considered excepted benefits. Similarly, consumer
groups argued that, if an employer offers primary group health coverage
that is treated as unaffordable under the Code, but offers limited-
scope vision or dental coverage, such limited-scope vision or dental
coverage should qualify as excepted benefits so as not to make such
individuals ineligible to receive a premium tax credit under section
36B of the Code if they enroll in

[[Page 59132]]

coverage under a Qualified Health Plan (QHP) through an Affordable
Insurance Exchange, or ``Exchange'' (also called a Health Insurance
Marketplace or Marketplace).
In response to these concerns, and to achieve greater consistency
between insured and self-insured coverage, the 2013 proposed
regulations proposed eliminating the requirement under the HIPAA
regulations that participants pay an additional premium or contribution
for limited-scope vision or dental benefits to qualify as benefits that
are not an integral part of a plan (and therefore to qualify as
excepted benefits).
The Departments invited comments on this approach. Many comments
supported the concept of achieving greater consistency regarding the
excepted benefits requirements for dental and vision benefits between
insured and self-insured plans. One comment argued that the proposal
undermined the inclusion of pediatric vision and dental coverage as an
essential health benefit. Other comments requested clarification as to
whether separately-administered and stand-alone dental and vision
benefits offered separate from, or without a connection to, a primary
plan could qualify as excepted benefits.
Consistent with the 2013 proposed regulations, these final
regulations eliminate the requirement under the HIPAA regulations that
participants pay an additional premium or contribution for limited-
scope vision or dental benefits to qualify as excepted benefits. As
explained in the preamble to the 2013 proposed regulations, without
this change, an employer that establishes or maintains a self-insured
plan could be required to charge a nominal contribution from
participants simply for limited-scope vision and dental benefits to
qualify as excepted benefits and, in some cases, the cost of collecting
the nominal contribution would be greater than the contribution itself.
In addition, if an employer offers primary group health coverage that
is unaffordable to individuals, but limited-scope vision or dental
coverage, without this modification, accepting the vision or dental
coverage could make such individuals ineligible to receive a premium
tax credit under section 36B of the Code if they enroll in coverage
under a QHP through the Exchange.
In addition, it is the Departments' view that the final regulations
do not undermine the inclusion of pediatric vision or dental coverage
as essential health benefits. The requirement that issuers in the small
group market offer coverage of essential health benefits is not
changed, and that rule does not apply to large or self-insured plans.
Moreover, PHS Act section 2711 (as incorporated into ERISA by section
715 and the Code by section 9815) allows self-insured plans to choose
any definition of essential health benefits that is authorized by the
Secretary of HHS for purposes of the prohibition on lifetime or annual
dollar limits on essential health benefits.\17\
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\17\ See CMS, Frequently Asked Questions on Essential Health
Benefits Bulletin, Q10 (February 17, 2012) http://www.cms.gov/CCIIO/Resources/Files/Downloads/ehb-faq-508.pdf.
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These final regulations clarify that limited-scope vision or dental
benefits do not have to be offered in connection with a separate offer
of major medical or ``primary'' group health coverage under the plan,
in order to meet the statutory criterion that such benefits are
``otherwise not an integral part of the plan.'' To meet this criterion,
limited-scope vision or dental benefits can be provided without
connection to a primary plan, or the limited-scope vision or dental
benefits can be offered separately from the major medical or
``primary'' coverage under the plan (as described in these final
regulations). Under the 2013 proposed regulations, in order to satisfy
the statutory excepted benefits criterion that such benefits cannot
otherwise be ``an integral part of the plan,'' participants must be
able to decline coverage. These final regulations provide that this
criterion is satisfied if participants may decline coverage or the
claims for the benefits are administered under a contract separate from
claims administration for any other benefits under the plan.
While coverage for long-term care benefits is not the focus of this
rule, such benefits are also subject to the ``not an integral part of a
group health plan'' standard in order to be classified as excepted
benefits. Accordingly, the revisions discussed in this section of the
preamble also apply to coverage of long-term care benefits.

B. Employee Assistance Programs

EAPs are typically programs offered by employers that can provide a
wide-ranging set of benefits to address circumstances that might
otherwise adversely affect employees' work and health. Benefits may
include referral services and short-term substance use disorder or
mental health counseling, as well as financial counseling and legal
services. They are typically available free of charge to employees and
are often provided through third-party vendors. Benefits for medical
care provided through an EAP would generally be considered group health
plan coverage (and, therefore, minimum essential coverage), which would
generally be subject to the HIPAA and Affordable Care Act market reform
requirements (and could make individuals receiving benefits under an
EAP ineligible to receive a premium tax credit under section 36B of the
Code if they enroll in coverage under a QHP through the Exchange),
unless the EAP meets the criteria for being excepted benefits.
Since enactment of the Affordable Care Act, various stakeholders
have asked the Departments to treat EAPs as excepted benefits for
reasons analogous to the arguments described above with respect to
vision and dental benefits. Specifically, some employers represented
that compliance with the prohibition on annual dollar limits could be
problematic as such benefits are typically very limited, and that EAPs
generally are intended to provide benefits in addition to those
provided under other group health plans sponsored by employers.
Moreover, consumer groups have represented that EAPs with very limited
benefits, which may be the only coverage offered to employees, could
make such employees ineligible to receive a premium tax credit under
section 36B of the Code if they enroll in coverage under a QHP through
the Exchange. At the same time, the Departments recognize that no
universal definition exists for EAPs, and are concerned that employers
not act to shift primary coverage to a separate ``EAP plan,'' exempt
from the consumer protection provisions of title XXVII of the PHS Act,
part 7 of ERISA, and chapter 100 of the Code, including the mental
health parity provisions.\18\
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\18\ The mental health parity provisions are included in PHS Act
section 2726, ERISA section 712, and Code section 9812. See also
final regulations on mental health parity, published at 78 FR 68239
(November 13, 2013).
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In guidance issued on September 13, 2013, the Departments stated
their intent to amend the excepted benefits regulations with respect to
EAPs.\19\ The guidance also provided transition relief, stating,
``[u]ntil rulemaking is finalized, through at least 2014, the
Departments will consider an employee assistance program or EAP to
constitute excepted benefits only if the employee assistance

[[Page 59133]]

program or EAP does not provide significant benefits in the nature of
medical care or treatment. For this purpose, employers may use a
reasonable, good faith interpretation of whether an employee assistance
program or EAP provides significant benefits in the nature of medical
care or treatment.''
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\19\ See IRS Notice 2013-54 (available at http://www.irs.gov/pub/irs-drop/n-13-54.pdf) and DOL Technical Release 2013-03
(available at http://www.dol.gov/ebsa/newsroom/tr13-03.html), Q&A 9.
See also CMS Insurance Standards Bulletin--Application of Affordable
Care Act Provisions to Certain Healthcare Arrangements (available at
http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf).
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The 2013 proposed regulations set forth criteria for an EAP to
qualify as excepted benefits beginning in 2015. Under the 2013 proposed
regulations, benefits provided under EAPs are excepted if four criteria
are met. First, the program cannot provide significant benefits in the
nature of medical care. The Departments invited comments on how to
define ``significant.'' For example, the Departments requested comments
as to whether a program that provides no more than 10 outpatient visits
for mental health or substance use disorder counseling, an annual
wellness checkup, immunizations, and diabetes counseling, with no
inpatient care benefits, should be considered to provide significant
benefits in the nature of medical care.\20\
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\20\ Other examples of EAPs that do not provide significant
benefits in the nature of medical care, discussed in IRS Notice
2004-50 Q&A-10 include (1) an EAP with benefits that consist
primarily of free or low-cost confidential short-term counseling
(which could address substance abuse, alcoholism, mental health or
emotional disorders, financial or legal difficulties, and dependent
care needs) to identify an employee's problem that may affect job
performance and, when appropriate, referrals to an outside
organization, facility or program to assist the employee in
resolving the problem; and (2) a wellness program that provides a
wide-range of education and fitness services (also including sports
and recreation activities, stress management, and health screenings)
designed to improve the overall health of the employees and prevent
illness, where any costs charged to the individual for participating
in the services are separate from the individual's coverage under
the health plan.
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The second proposed criterion for an EAP to constitute excepted
benefits under the 2013 proposed regulations is that its benefits
cannot be coordinated with benefits under another group health plan.
The Departments outlined three conditions to meet this proposed
criterion: (i) participants in the separate group health plan must not
be required to exhaust benefits under the EAP (making the EAP a
``gatekeeper'') before an individual is eligible for benefits under the
other group health plan; (ii) participant eligibility for benefits
under the EAP must not be dependent on participation in another group
health plan; and (iii) benefits under the EAP must not be financed by
another group health plan.
The third proposed criterion for an EAP to constitute excepted
benefits under the 2013 proposed regulations is that no employee
premiums or contributions be required to participate in the EAP. The
fourth proposed criterion is that there is no cost sharing under the
EAP.
The criteria in the 2013 proposed regulations were intended to
ensure that employers are able to continue offering EAPs as
supplemental benefits to other coverage, and to ensure that in
circumstances in which an EAP with limited benefits is the only
coverage, or the only affordable coverage provided to an employee, that
the coverage does not unreasonably disqualify an employee from
potential eligibility to receive a premium tax credit under section 36B
of the Code if the employee enrolls in coverage under a QHP through the
Exchange. The Departments requested comments on whether the criteria
proposed are sufficient to prevent the potential for abuse, including
the evasion of compliance with the mental health parity provisions, and
whether different or additional standards should be included.
The Departments received a number of comments relating to the
treatment of EAPs as excepted benefits. While the comments generally
supported treating EAPs as excepted benefits, there were many
suggestions for clarifying or modifying the specific requirements in
the 2013 proposed regulations for EAPs to constitute excepted benefits.
In particular, many comments included suggestions for clarifying what
is meant by significant benefits in the nature of medical care. Most of
these comments raised concerns about the suggestion in the preamble to
propose using numerical limits on the number of visits.
Some comments requested that EAPs be allowed to provide wellness
and disease management programs, provided such programs do not provide
significant benefits in the nature of medical care. However, treating
wellness programs as excepted benefits by including them in an EAP
would circumvent consumer protections contained in the statutory
standards for wellness programs under section 2705(j) of the PHS Act as
enacted by the Affordable Care Act. This suggestion is not adopted in
these final regulations.
Several comments opposed the prohibition in the 2013 proposed
regulations on an EAP being financed by the other group health plan to
qualify as excepted benefits. In particular, the comments noted that
often the EAP and the group health plan are financed by a single
payment or otherwise combined, and the requirement would result in
disruptions of existing commercial arrangements. Moreover, these
comments noted, the other requirements sufficiently protected against
inappropriate coordination of the EAP benefits with the benefits of the
other group health plan. In addition, there were a number of comments
concerning EAPs that were beyond the scope of the 2013 proposed
regulations.
After consideration of the comments, the Departments are finalizing
the proposal, with one modification related to financing, described
below.\21\ As with the 2013 proposed regulations, these final
regulations provide that, for an EAP to constitute excepted benefits,
the EAP must satisfy four requirements.
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\21\ In the 2013 proposed regulations, the requirements
regarding EAPs were proposed in paragraph (c)(3)(vii) of 26 CFR
54.9831-1, 29 CFR 2590.732, and 45 CFR 146.145. However, HHS
regulations published on October 30, 2013 and effective December 30,
2013 redesignated 45 CFR 146.145(c) as paragraph (b) (78 FR at
65092). Additionally, because these regulations are finalizing only
the requirements related to dental and vision benefits and EAP
benefits, these final regulations have been renumbered so that the
requirements regarding EAPs are now contained in paragraph
(c)(3)(vi) of 26 CFR 54.9831-1 and 29 CFR 2590.732, and in paragraph
(b)(3)(vi) of 45 CFR 146.145. As stated earlier in this preamble,
the Departments also intend to publish regulations that address
limited wraparound coverage in the future, taking into account the
extensive comments received on this issue. Those provisions are
intended to be codified in paragraph (c)(3)(vii) of 26 CFR 54.9831-1
and 29 CFR 2590.732, and in paragraph (b)(3)(vii) of 45 CFR 146.145.
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The first requirement of the 2013 proposed regulations and these
final regulations is that the EAP does not provide significant benefits
in the nature of medical care. For this purpose, the amount, scope, and
duration of covered services are taken into account. For example, an
EAP that provides only limited, short-term outpatient counseling for
substance use disorder services (without covering inpatient,
residential, partial residential or intensive outpatient care) without
requiring prior authorization or review for medical necessity does not
provide significant benefits in the nature of medical care. At the same
time, a program that provides disease management services (such as
laboratory testing, counseling, and prescription drugs) for individuals
with chronic conditions, such as diabetes, does provide significant
benefits in the nature of medical care. The Departments may, through
guidance, provide additional clarification in the future regarding when
a program provides significant benefits in the nature of medical care.
The second requirement of these final regulations is that for an
EAP to constitute excepted benefits, its benefits cannot be coordinated
with the benefits under another group health plan. This requirement has
two elements: (1)

[[Page 59134]]

Participants in the other group health plan must not be required to use
and exhaust benefits under the EAP (making the EAP a ``gatekeeper'')
before an individual is eligible for benefits under the other group
health plan; and (2) participant eligibility for benefits under the EAP
must not be dependent on participation in another group health plan. In
response to comments, these 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.
The third requirement of the 2013 proposed regulations and these
final regulations for EAPs to constitute excepted benefits is that no
employee premiums or contributions may be required as a condition of
participation in the EAP. Finally, as with the 2013 proposed
regulations, the final regulations provide that an EAP that constitutes
excepted benefits may not impose any cost-sharing requirements.

C. Applicability Date and Reliance

In the preamble to the 2013 proposed regulations, the Departments
stated that, until rulemaking is finalized, through at least 2014, for
purposes of enforcing the provisions of title XXVII of the PHS Act,
part 7 of ERISA, and chapter 100 of the Code, the Departments will
consider dental and vision benefits, and EAP benefits, meeting the
conditions of the 2013 proposed regulations to qualify as excepted
benefits and that, to the extent final regulations or other guidance
with respect to vision or dental benefits or EAPs is more restrictive
on plans and issuers than the 2013 proposed regulations, the final
regulations or other guidance will not be effective prior to January 1,
2015. These final regulations apply to group health plans and group
health insurance issuers for plan years beginning on or after January
1, 2015. They do not apply to health insurance issuers offering
individual health insurance coverage. Until the applicability date of
these final regulations, the Departments will consider dental and
vision benefits and EAP benefits meeting the conditions of the 2013
proposed regulations or these final regulations to qualify as excepted
benefits.

III. Economic Impact and Paperwork Burden

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

As stated above, these final regulations eliminate the requirement
under the HIPAA regulations that participants pay an additional premium
or contribution for limited-scope vision or dental benefits to qualify
as excepted benefits, and set forth four requirements for an EAP to
constitute excepted benefits.

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

OMB has determined that this regulatory action is significant
within the meaning of section 3(f)(4) of the Executive Order, and the
Departments accordingly provide the following assessment of its
potential benefits and costs. The Departments expect the impact of
these final regulations to be limited.
Specifically, with respect to vision and dental benefits, the final
regulations allow group health plans to offer dental and vision
benefits to employees without charging a premium or contribution. As
stated earlier in the preamble, this eliminates a difference that would
otherwise exist between insured and self-insured coverage. With respect
to EAPs, the final regulations clarify the conditions that be must be
satisfied for such benefits to constitute excepted benefits, which are
not subject to the group market requirements under the PHS Act, ERISA,
and the Code.
Some employers represented to the Departments that compliance with
the Affordable Care Act presented challenges for their limited-scope
vision and dental benefits and EAPs. The clarifications provided in
these final regulations will benefit employees by ensuring continued
access to these benefits. The Departments expect these final
regulations to have some costs, but these costs will be limited because
the Departments expect the primary result of the final regulations will
be that employers providing limited-scope dental and vision and EAP
benefits will continue to provide such benefits and that the number of
employers who will begin providing such benefits for the first time
will be small.

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

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a proposed rule is not likely
to have a significant economic impact on a substantial number of small
entities, section 603 of RFA requires that the agency present an
initial regulatory flexibility analysis at the time of the publication
of the notice of proposed rulemaking describing the impact of the rule
on small entities and seeking public comment on such impact. Small
entities include small businesses, organizations and governmental
jurisdictions.
For purposes of the RFA, the Departments continue to consider a
small entity to be an employee benefit plan with fewer than 100
participants. The basis for this definition is found in section
104(a)(2) of the act, which permits the Secretary of Labor to prescribe
simplified annual reports for pension plans that cover fewer than 100
participants. Pursuant to the authority of section 104(a)(3), the
Department of Labor has previously issued at 29 CFR 2520.104-20,
2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain
simplified reporting provisions and limited exemptions from reporting
and disclosure requirements for small plans, including unfunded or
insured welfare plans covering fewer than 100 participants and
satisfying certain other requirements.
Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, the
Departments believe that assessing the impact of these final
regulations on small plans is an appropriate substitute for evaluating
the effect on small entities. The definition of small entity considered
appropriate for this purpose differs, however, from a definition of
small business that is based on size standards promulgated by the Small
Business Administration (13 CFR 121.201) pursuant to the Small Business
Act (15 U.S.C. 631 et seq.).
As noted above, the Departments expect the costs imposed by these
regulations to be limited for those employers that provide dental,
vision and EAP benefits, and that they will not affect employers who do
not provide such benefits. The final regulations allow employers to
decide based on their own costs and benefits what action to take. This
is true for large and small plans alike. Accordingly, the Departments
believe that these final regulations do not have a significant economic
impact on a substantial number of small entities. Accordingly, pursuant
to section 605(b) of the RFA, the Departments hereby certify that these
final regulations will not have a significant economic impact on a
substantial number of small entities.

[[Page 59135]]

D. Special Analyses--Department of the Treasury

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

E. Unfunded Mandates Reform Act

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

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

Executive Order 13132 outlines fundamental principles of
federalism. It requires adherence to specific criteria by Federal
agencies in formulating and implementing policies that have
``substantial direct effects'' on the States, the relationship between
the national government and States, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with State and local officials, and describe
the extent of their consultation and the nature of the concerns of
State and local officials in the preamble to the final regulation.
In the Departments' view, the final regulations, by clarifying
policy regarding certain excepted benefits options that can be designed
by employers to support their employees, would provide more certainty
to employers and others in the regulated community as well as States
and political subdivisions regarding the treatment of such arrangements
under the PHS Act, ERISA and the Code. Through the regular course of
outreach the Departments normally engage in with officials of States
(and political subdivisions), the Departments are aware of no special
federalism implications presented by these final regulations. The
Departments will continue to conduct regular outreach activities with
States.

G. Congressional Review Act

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

IV. Statutory Authority

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

List of Subjects

26 CFR Part 54

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

29 CFR Part 2590

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

45 CFR Part 146

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

John Dalrymple,
Deputy Commissioner for Services and Enforcement, Internal Revenue
Service.

Approved: September 25, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).

Signed this 25th day of September, 2014.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.

Dated: September 11, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.

Dated: September 19, 2014.
Sylvia Burwell,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Accordingly, 26 CFR part 54 is amended as follows:

PART 54--PENSION EXCISE TAXES

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

Authority: 26 U.S.C. 7805. * * *

Section 54.9831-1 is also issued under 26 U.S.C. 9833; * * *

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

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

[[Page 59136]]

paragraph (c)(3), benefits are not an integral part of a group health
plan (whether the benefits are provided through the same plan, a
separate plan, or as the only plan offered to participants) if either
paragraph (c)(3)(ii)(A) or (B) are satisfied.
(A) Participants may decline coverage. For example, a participant
may decline coverage if the participant can opt out of the coverage
upon request, whether or not there is a participant contribution
required for the coverage.
(B) Claims for the benefits are administered under a contract
separate from claims administration for any other benefits under the
plan.
* * * * *
(vi) Employee assistance programs. Benefits provided under employee
assistance programs are excepted if they satisfy all of the
requirements of this paragraph (c)(3)(vi).
(A) The program does not provide significant benefits in the nature
of medical care. For this purpose, the amount, scope and duration of
covered services are taken into account.
(B) The benefits under the employee assistance program are not
coordinated with benefits under another group health plan, as follows:
(1) Participants in the other group health plan must not be
required to use and exhaust benefits under the employee assistance
program (making the employee assistance program a gatekeeper) before an
individual is eligible for benefits under the other group health plan;
and
(2) Participant eligibility for benefits under the employee
assistance program must not be dependent on participation in another
group health plan.
(C) No employee premiums or contributions are required as a
condition of participation in the employee assistance program.
(D) There is no cost sharing under the employee assistance program.
* * * * *

DEPARTMENT OF LABOR

Employee Benefits Security Administration

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

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
3. The authority citation for part 2590 is revised to read as follows:

Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1185d, 1191, 1191a, 1191b, and
1191c; sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b),
Pub. L. 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 12(d),
Pub. L. 110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub.
L. 111-148, 124 Stat. 119, as amended by Pub. L. 111-52, 124 Stat.
1029; Secretary of Labor's Order 1-2011, 77 FR 1088 (January 9,
2012).

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

Sec. 2590.732 Special rules relating to group health plans.

* * * * *
(c) * * *
(3) * * *
(i) In general. Limited-scope dental benefits, limited-scope vision
benefits, or long-term care benefits are excepted if they are provided
under a separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of a group health plan as described in
paragraph (c)(3)(ii) of this section. In addition, benefits provided
under a health flexible spending arrangement are excepted benefits if
they satisfy the requirements of paragraph (c)(3)(v) of this section.
Furthermore, benefits provided under an employee assistance program are
excepted benefits if they satisfy the requirements of paragraph
(c)(3)(vi) of this section.
(ii) Not an integral part of a group health plan. For purposes of
this paragraph (c)(3), benefits are not an integral part of a group
health plan (whether the benefits are provided through the same plan, a
separate plan, or as the only plan offered to participants) if either
paragraph (c)(3)(ii)(A) or (B) are satisfied.
(A) Participants may decline coverage. For example, a participant
may decline coverage if the participant can opt out of the coverage
upon request, whether or not there is a participant contribution
required for the coverage.
(B) Claims for the benefits are administered under a contract
separate from claims administration for any other benefits under the
plan.
* * * * *
(vi) Employee assistance programs. Benefits provided under employee
assistance programs are excepted if they satisfy all of the
requirements of this paragraph (c)(3)(vi).
(A) The program does not provide significant benefits in the nature
of medical care. For this purpose, the amount, scope and duration of
covered services are taken into account.
(B) The benefits under the employee assistance program are not
coordinated with benefits under another group health plan, as follows:
(1) Participants in the other group health plan must not be
required to use and exhaust benefits under the employee assistance
program (making the employee assistance program a gatekeeper) before an
individual is eligible for benefits under the other group health plan;
and
(2) Participant eligibility for benefits under the employee
assistance program must not be dependent on participation in another
group health plan.
(C) No employee premiums or contributions are required as a
condition of participation in the employee assistance program.
(D) There is no cost sharing under the employee assistance program.
* * * * *

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Subtitle A

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

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

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

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

0
6. Section 146.145 is amended by revising paragraphs (b)(3)(i) and
(b)(3)(ii), and adding paragraph (b)(3)(vi), to read as follows:

Sec. 146.145 Special rules relating to group health plans.

* * * * *
(b) * * *
(3) * * *
(i) In general. Limited-scope dental benefits, limited-scope vision
benefits, or long-term care benefits are excepted if they are provided
under a separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of a group health plan as described in
paragraph (b)(3)(ii) of this section. In addition, benefits provided
under a health flexible spending arrangement are excepted benefits if
they satisfy the requirements of paragraph (b)(3)(v) of this section.
Furthermore, benefits provided under an employee assistance program are
excepted benefits if they satisfy the requirements of paragraph
(b)(3)(vi) of this section.
(ii) Not an integral part of a group health plan. For purposes of
this

[[Page 59137]]

paragraph (b)(3), benefits are not an integral part of a group health
plan (whether the benefits are provided through the same plan, a
separate plan, or as the only plan offered to participants) if either
paragraph (b)(3)(ii)(A) or (B) are satisfied.
(A) Participants may decline coverage. For example, a participant
may decline coverage if the participant can opt out of the coverage
upon request, whether or not there is a participant contribution
required for the coverage.
(B) Claims for the benefits are administered under a contract
separate from claims administration for any other benefits under the
plan.
* * * * *
(vi) Employee assistance programs. Benefits provided under employee
assistance programs are excepted if they satisfy all of the
requirements of this paragraph (b)(3)(vi).
(A) The program does not provide significant benefits in the nature
of medical care. For this purpose, the amount, scope and duration of
covered services are taken into account.
(B) The benefits under the employee assistance program are not
coordinated with benefits under another group health plan, as follows:
(1) Participants in the other group health plan must not be
required to use and exhaust benefits under the employee assistance
program (making the employee assistance program a gatekeeper) before an
individual is eligible for benefits under the other group health plan;
and
(2) Participant eligibility for benefits under the employee
assistance program must not be dependent on participation in another
group health plan.
(C) No employee premiums or contributions are required as a
condition of participation in the employee assistance program.
(D) There is no cost sharing under the employee assistance program.
* * * * *

[FR Doc. 2014-23323 Filed 9-26-14; 4:15 pm]
BILLING CODE 4150-28-P; 4830-01-P; 4510-29-P]