Since you asked: Is an ‘excepted benefit’ subject to ERISA?

Question

Our company provides several “excepted benefits” (e.g., an employee assistance program [EAP], limited scope dental and vision, onsite clinic, hospital insurance and other supplemental benefits) in addition to our major medical plan. Are these excepted benefits subject to the Employee Retirement Income Security Act of 1974 (ERISA)? If so, what compliance issues should we be addressing?

Answer

Yes. Excepted benefits providing medical care are generally considered group health plans subject to ERISA. Being an excepted benefit does not automatically provide an exception from ERISA compliance. Many employers are offering what may be considered as excepted benefits, but if those benefits are providing medical care, they must comply with ERISA. Otherwise, the employer could face participant lawsuits and potential penalties imposed by the Department of Labor.

What is an excepted benefit?

There are four categories of excepted benefits:

1. Benefits excepted in all circumstances, such as onsite clinics, automobile insurance, liability insurance, workers compensation, and accidental death and dismemberment coverage
2. Limited excepted benefits, such as limited scope vision or dental benefits; certain healthcare flexible spending accounts; and benefits for long-term care, nursing home care, home healthcare or community-based care
3. Non-coordinated excepted benefits, such as specified disease or illness coverage (e.g., cancer and critical illness policies) and hospital indemnity or other fixed indemnity insurance (e.g., accident indemnity insurance)
4. Supplemental excepted benefits, such as coverage supplemental to Medicare, or to the Civilian Health and Medical Program of the Department of Veterans Affairs or to Tricare, or similar coverage that is supplemental to coverage provided under a group health plan that is provided under a separate policy, certificate or contract of insurance

Some examples of potential supplemental excepted benefits are certain EAPs, Hinge Health (musculoskeletal health), Livongo and Virta (diabetes and metabolic health), Carrot and Progyny (fertility and pregnancy), Lyra and Spring Health (behavioral health), and Teledoc (second medical opinion).

A plan’s excepted benefit status should be determined by an employer’s legal counsel.

What is ERISA, and which plans are subject to it?

ERISA is a federal law that sets minimum standards for most voluntarily established retirement and health and welfare plans in private industry to protect plan participants and beneficiaries. Governmental plans, church plans and plans that are maintained solely to comply with workers compensation, unemployment or disability laws are not subject to ERISA.

What is an ERISA group health plan?

An ERISA group health plan is an employee welfare benefit plan that provides medical care to employees or their dependents directly or through insurance, reimbursement or otherwise. The definition of medical care for purposes of ERISA is similar to the definition in the Internal Revenue Code and includes care for the diagnosis, cure, mitigation, treatment or prevention of disease or amounts paid for the purpose of affecting any structure or function of the body. Many excepted benefits that meet the definition of a group health plan under ERISA may not currently be complying with ERISA’s requirements.

What are the ERISA requirements that apply to group health plans?

The following are among the many ERISA requirements for group health plans:

• Reporting and disclosure: ERISA requires covered plans to maintain official plan documents, provide participants and beneficiaries with summary plan descriptions (SPDs), and file a Form 5500 (annual report), among other reports and disclosures.
• Other laws incorporated: ERISA plans must comply with other laws incorporated into it — such as COBRA (for continuation of group health plan coverage), the Affordable Care Act, and the Mental Health Parity and Addiction Equity Act — unless there is a specific exception.

In an example scenario, an employer’s counsel determines its EAP is an excepted benefit. The EAP provides medical care through mental health counseling and therefore is considered an ERISA group health plan. It must comply with ERISA’s reporting and disclosure rules by having a written plan document and SPD meeting ERISA’s documentation requirements (often employers include the EAP with their other health benefits documentation). The EAP must also file a Form 5500. In addition, COBRA’s continuation of healthcare coverage requirements would apply; however, as an excepted benefit, the ACA’s insurance market reforms and MHPAEA would not apply.

Takeaways

• Employers should work with their legal counsel to determine the excepted benefit status of their supplemental benefit coverages.
• Employers should work with their legal counsel to determine the ERISA plan status of their excepted benefits.
• Excepted benefits that are ERISA plans must comply with all applicable ERISA requirements, including maintaining a plan document and SPD, filing a Form 5500 and providing COBRA continuation coverage.