Understanding HIPAA Excepted Benefits

What are Excepted Benefits?

Excepted benefits are benefit products that are designed to supplement comprehensive medical coverage. They often provide certain types of medical benefits on a limited or ancillary basis.

What Types of Compliance Exceptions do Excepted Benefits Enjoy?

Generally speaking, excepted benefits are exempt from the Health Insurance Portability and Accountability Act (“HIPAA”) rules related to portability of coverage. Furthermore, they are also exempt from other laws that have been incorporated into the HIPAA portability statute, including the Mental Health Parity & Equity Act (“MHPAEA”), the Women’s Health & Cancer Rights Act (“WHCRA”), the Newborn’s & Mother’s Health Protection Act (“NMHPA”), and Title I of the Genetic Information Nondiscrimination Act (“GINA”). In addition, excepted benefits are exempt from many of the ACA’s substantive requirements, including many of the insurance market reforms.

What Types of Compliance Exceptions do not Apply to Excepted Benefits?

It is important to understand that just because a benefit is an excepted benefit for purposes of HIPAA’s portability requirements does not mean it is exempt from all aspects of HIPAA. For example, some excepted benefits are still subject to HIPAA’s administrative simplification requirements (including the application of HIPAA’s Privacy, Security, Breach Notification, and Enforcement Rules).

What are Benefit Type Designations?

The following analysis identifies several categories or types of excepted benefits and their related compliance exemptions. Please note that designation by “benefit type” is not a function of HIPAA rulemaking; instead, “benefit type” designations are applied merely for ease of understanding and employer classification purposes only.

How Many Types of Excepted Benefits Have Been Classified?

There are four generally classified types of HIPAA excepted benefits, as detailed in the following chart:

Type	Designation	Overview
Type One	Non-coordinated Excepted Benefits	Non-coordinated Excepted Benefits consist of coverage limited to specified disease coverage and hospital indemnity or other fixed indemnity insurance.
Type Two	Limited Excepted Benefits	Limited Excepted Benefits consist of limited excepted dental coverage, limited excepted vision coverage, EAPs, long-term care, home health care, most, nursing home care, community-based care, and certain Health FSAs, so long as they qualify as limited scope benefits.
Type Three	Supplemental Excepted Benefits	Supplemental Excepted Benefits consist of certain supplemental coverage and are considered excepted benefit if they are provided under a separate policy, certificate, or contract of insurance and are either Medicare supplemental health insurance, TRICARE supplemental programs, or similar supplemental coverage added to a group health plan.
Type Four	Non-health Excepted Benefits	Non-health Excepted Benefits consist of accident coverage, disability income protection, liability insurance, workers’ compensation, automobile medical payment insurance, on-site clinics, or other similar non-health programs, or similar non- health coverage added to a group health plan.

The remaining sections of this summary provide additional details respecting each type of except benefit, including additional overviews, qualification requirements, specific compliance exemptions, and additional compliance-related notes.

TYPE ONE: Non-coordinated Excepted Benefits

Overview of Non- coordinated Excepted Benefits

Type One benefits consist of coverage limited to specified disease coverage and hospital indemnity or other fixed indemnity insurance.

• Hospital or fixed indemnity insurance is insurance that pays a fixed dollar amount per day (or other period) of hospitalization or illness.
• Policies that do not pay on a per- period basis but rather pay a fixed amount based on the type of procedure performed or drug prescribed are not considered fixed indemnity insurance and therefore will not qualify as an excepted benefit.

Qualification Requirements

To qualify as Non-coordinated Excepted Benefits, these plans and programs must satisfy the following requirements:

1. The coverage is provided under a separate policy, certificate, or contract of insurance.
2. There can be no coordination between the provision of such benefits and any exclusion under any plan maintained by that employer.
3. Benefits must be payable regardless of whether benefits are provided for the same event under any group health plan maintained by the same plan sponsor.

Compliance Exemptions for Non-coordinated Excepted Benefits

The following compliance mandates and requirements do not apply to Type One: Non- coordinated Benefits:

• HIPAA Non-Discrimination requirements, including provisions such as the prohibitions against actively-at-work provisions and source of injury restrictions;
• HIPAA Portability requirements; and,
• Certain requirements under the Affordable Care Act (ACA), including health insurance market reforms and the requirements related to essential components of minimum essential coverage.

Additional Compliance Notes

Note that Type One: Non- coordinated Excepted Benefits are not exempt from the HIPAA administrative simplification standards, including compliance mandates arising under HIPAA’s Privacy, Security, Breach Notification, and Enforcement Rules.

In addition, the status of Type One benefits for purposes of HIPAA Privacy, Security, Breach Notification, and Enforcement Rule application is unclear when provided through an employer under an insurance policy for which employees pay 100% of the premium.

TYPE TWO: Limited Excepted Benefits

Overview of Limited Excepted Benefits

Type Two: Limited Excepted Benefits consist of the following benefits if they qualify as limited scope benefits:

• Limited-scope dental benefits;
• Limited-scope vision benefits;
• Benefits for long-term care, nursing-home care, home care, or community-based care;
• Employee assistance plans;
• Certain health FSAs; and,
• Other similar, limited benefits, as specified in the applicable agency rulemaking.

Qualification Requirements

To qualify as Limited Excepted Benefits, these plans and programs must satisfy the following requirements:

1. Must not be an integral part of the plan; and
2. Must be provided under a separate policy, contract or certificate of insurance.

Benefits will be viewed as not integral to a plan (even if they are not separate from the medical coverage) if:

1. The participant has the right to elect not to receive the coverage (regardless of whether there is a participant charge); or,
2. Claims for benefits are administered under a separate contract from claims for other benefits under the plan.

In addition, dental and vision must consist of benefits substantially all of which are for treatment of the mouth or eye respectively.

An EAP is considered an excepted benefit if it meets the following criteria:

It must not provide “significant benefits in the nature of medical care.

• For example: An EAP that provides only limited, short-term outpatient counseling for substance use disorder services without requiring prior authorization or review for medical necessity does not provide significant benefits in the nature of medical care.

• On the other hand, a program that provides disease management services for individuals with chronic conditions, such as diabetes, does provide significant benefits in the nature of medical care.

An EAP cannot be “coordinated with benefits under another group health plan.” Effectively, this mean that:

1. Participants in the other group health plan must not be required to use or 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.

No employee premiums or contributions may be required as a condition of participation in the EAP.

The EAP may not impose any cost- sharing requirements.

Type Two: Limited Excepted Benefits include Health FSAs if they meet the following criteria:

• The maximum benefit payable under the health FSA to any participant cannot exceed two times the employee’s salary reduction election under the health FSA for the year (or, if greater, the amount of the employee’s salary reduction election for the health FSA for the year, plus $500); and
• the employer offers other group health plan coverage that is not an excepted benefit.

Compliance Exemptions for Non-coordinated Excepted Benefits

The following compliance mandates and requirements do not apply to Type Two: Limited Excepted Benefits:

• HIPAA Non-Discrimination requirements, including provisions such as the prohibitions against actively-at-work provisions and source of injury restrictions;
• HIPAA Portability requirements; and,
• Certain requirements under the Affordable Care Act (ACA), including health insurance market reforms and the requirements related to essential components of minimum essential coverage.

Additional Compliance Notes

Note that Type Two: Limited Excepted Benefits are not exempt from the HIPAA administrative simplification standards, including compliance mandates arising under HIPAA’s Privacy, Security, Breach Notification, and Enforcement Rules.

However, a fixed indemnity nursing home policy is not subject to HIPAA’s Privacy, Security, Breach Notification, and Enforcement Rules.

TYPE THREE: Supplemental Excepted Benefits

Overview of Supplemental Excepted Benefits

Type Three: Supplemental Excepted Benefits consist of certain supplemental coverage.

Benefits are supplemental excepted benefits if they are provided under a separate policy, certificate, or contract of insurance and are either Medicare supplemental health insurance, TRICARE supplemental programs, or similar supplemental coverage added to a group health plan.

The Department of Labor has issued a memorandum providing safe harbor requirements for “similar supplemental coverage.”

To fall within the safe harbor, the benefits must be provided under a separate policy, certificate, or contract of insurance that satisfies the following requirements:

1. Independent of Primary Coverage: the supplemental policy, certificate, or contract of insurance must be issued by an entity that does not provide the primary coverage under the plan.
   • For this purpose, entities that are part of the same controlled group of corporations or part of the same group of trades or businesses under common control, within the meaning of section 52(a) or (b) of the Code, are considered a single entity.
2. Supplemental for Gaps in Primary Coverage: the supplemental policy, certificate, or contract of insurance must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles, but does not include a policy, certificate, or contract of insurance that becomes secondary or supplemental only under a coordination-of-benefits provision.
   • Supplemental coverage may also meet this requirement by providing benefits not provided under the primary coverage (as distinct from filling gaps in cost sharing) but only if the benefits are not essential health benefits.
3. Supplemental in Value of Coverage: the cost of coverage under the supplemental policy, certificate, or contract of insurance must not exceed 15% of the cost of primary coverage. Cost is determined in the same manner as the applicable premium is calculated under a COBRA continuation provision.
4. Similar to Medicare Supplemental Coverage: the supplemental policy, certificate, or contract of insurance that is group health insurance coverage must not differentiate among individuals in eligibility, benefits, or premiums based on any health factor of an individual (or any dependent of the individual).

Compliance Exemptions for Non-coordinated Excepted Benefits

The following compliance mandates and requirements do not apply to Type Three: Supplemental Excepted Benefits:

• HIPAA Non-Discrimination requirements, including provisions such as the prohibitions against actively-at-work provisions and source of injury restrictions;
• HIPAA Portability requirements; and,
• Certain requirements under the Affordable Care Act (ACA), including health insurance market reforms and the requirements related to essential components of minimum essential coverage.

Additional Compliance Notes

Note that Type Three: Supplemental Excepted Benefits are not exempt from the HIPAA administrative simplification standards, including compliance mandates arising under HIPAA’s Privacy, Security, Breach Notification, and Enforcement Rules.

TYPE FOUR: Non-health Excepted Benefits

Overview of Non-health Excepted Benefits

Type Four: Non-health Excepted Benefits consist of the following:

• Coverage only for accidents (including accidental death and dismemberment coverage);
• Disability income coverage;
• Liability insurance, including general liability and auto liability insurance;
• Coverage issued as a supplement to liability insurance;
• Workers’ compensation or similar coverage;
• Automobile medical payment insurance;
• Credit-only insurance;
• Coverage for on-site medical clinics; and,
• Other similar coverage, as specified in the applicable agency rulemaking, under which benefits for medical care are secondary or incidental to other insurance benefits.

Compliance Exemptions for Non-coordinated Excepted Benefits

The following compliance mandates and requirements do not apply to Type Four: Non- health Excepted Benefits:

• HIPAA Non-Discrimination requirements, including provisions such as the prohibitions against actively-at-work provisions and source of injury restrictions;
• HIPAA Portability requirements;
• Certain requirements under the Affordable Care Act (ACA), including health insurance market reforms and the requirements related to essential components of minimum essential coverage; and,
• HIPAA administrative simplification standards, including compliance mandates arising under HIPAA’s Privacy, Security, Breach Notification, and Enforcement Rules.

Supplemental Resources

US Department of Labor FAQs on HIPAA Portability & Nondiscrimination:

• https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our- activities/resource-center/faqs/hipaa-compliance-faqs.pdf

Agency amendments to excepted benefit rules:

• https://www.federalregister.gov/documents/2014/10/01/2014- 23323/amendments-to-excepted-benefits

Agency overview of excepted benefit, lifetime & annual limits, and short- term limited duration insurance:

• https://www.federalregister.gov/documents/2016/10/31/2016- 26162/excepted-benefits-lifetime-and-annual-limits-and-short-term-limited- duration-insurance

Agency FAQs related to the Affordable Care Act and the Consolidated Appropriations Act:

• https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource- center/faqs/aca-part-57

Understanding excepted benefits from the US Department of Labor:

• https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable- care-act/for-employers-and-advisers/excepted-benefits