The IRS has announced that the Department of Health and Human Services (HHS) and the Treasury Department (including the IRS) will soon issue proposed regulations providing that a group health plan does not provide minimum value if it excludes substantial coverage to employees for in-patient hospitalization services or physician services (or both). Failure to comply with the minimum value requirements could lead to an applicable large employer being subject to a shared responsibility assessment under Code Sec. 4980H.
According to the IRS, the announcement of the up-coming regulations is a response to news that certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services are being promoted to employers. Promoters of these plans argue that the plans satisfy minimum value (or “MV”) requirements as determined through use of the on-line MV calculator referred to in the final HHS regulations and previously proposed IRS regulations (REG-125398-12).
Background of MV Requirements
An employee or family member who is offered coverage under an eligible employer-sponsored plan that offers affordable MV coverage is not eligible to receive premium tax credit under Code Sec. 36B for coverage in a qualified health plan. An applicable large employer may be liable for a shared responsibility assessment if one or more of its full-time employees receives a premium tax credit.
An eligible employer-sponsored plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to an employee (the minimum value percentage) is at least 60 percent. The minimum value percentage is determined by dividing the cost of certain benefits the plan would pay for a standard population by the total cost of certain benefits for the standard population, including amounts the plan pays and amounts the employee pays through cost-sharing, and then converting the result to a percentage. Under the final HHS regulations and Proposed Reg. §1.36B-6, several methods are available to determine minimum value: (1) the MV calculator, available online; (2) any safe harbors established by the IRS and HHS; (3) an actuarial certification; or (4) meeting any of the levels for metal coverage (bronze, silver, gold, or platinum).
Promoted Benefit Plans Targeted by IRS
Promoters of the benefit plans being targeted by Treasury and HHS claim that the plans satisfy the MV requirements. However, it is questionable whether plans that do not provide substantial coverage for in-patient hospitalization services could satisfy the minimum value requirements. The IRS further points to concerns as to whether the continuance tables underlying the MV calculator and, thus, the MV calculator itself, produce valid actuarial results for unconventional plan designs that exclude substantial coverage for in-patient hospitalization services.
According to Mark Holloway, a benefits attorney for insurance broker Lockton Companies. “Theoretically, it is possible to design a plan that does not have hospitalization coverage that meets the 60-percent minimum value threshold and as long as the premium for single coverage is less than 9.56 percent of a person’s income, then the person is going to be locked out of getting any kind of subsidized coverage on the exchange,” Holloway explained. “If they can’t go to the exchange and get a subsidy, then you, the employer, can’t get hit with a $3,000 penalty (under the shared responsibility provisions of the PPACA). The game is, if you offer this minimum value plan that’s affordable, you’ve made yourself bulletproof,” he said. Many companies have already designed and offered plans to employees that will take effect in January 2015, but those efforts might be disrupted if the federal government makes changes, he added.
Regulations to be Proposed
According to the IRS, it is the position of Treasury and HHS that benefit plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both) do not meet the minimum value requirement. To combat these types of plans, both departments will soon issue proposed regulations providing that a plan will not provide minimum value if it excludes substantial coverage for in-patient hospitalization services or physician services (or both). Under the regulations, an employer will not be allowed to use the MV calculator (or any actuarial certification or valuation) to establish that a non-hospital/non-physician services plan provides minimum value.
The IRS expects that the newly proposed regulations will be finalized in 2015 and will apply to plans, other than pre-November 4, 2014, non-hospital/non-physician services plans, on the date they become final. As a result, the IRS suggests, a non-hospital/non-physician services plan (other than a pre-November 4, 2014, non-hospital/non-physician services plan) should not be adopted for the 2015 plan year. It is anticipated that the regulations will not apply to pre-November 4, 2014, non-hospital/non-physician services plans until after the end of the plan year beginning no later than March 1, 2015.
Pending the adoption of final regulations, the IRS stated, an employee will not be required to treat a non-hospital/non-physician services plan as providing MV for purposes of an employee’s eligibility for a premium tax credit under Code Sec. 36B, whether or not the plan is a pre-November 4, 2014, non-hospital/non-physician services plan.
An employer that offers a non-hospital/non-physician services plan (including a pre-November 4, 2014 plan) to an employee (1) must not state or imply in any disclosure that the offer of coverage under the plan precludes an employee from obtaining a premium tax credit, if otherwise eligible, and (2) must timely correct any prior disclosures that stated or implied otherwise. According to the IRS, without such a corrective disclosure, a statement that a non-hospital/non-physician services plan provides minimum value will be treated as if the offer of such a plan precludes employees from obtaining a premium tax credit. However, the IRS noted, an employer that also offers an employee another plan that is not a non-hospital/non-physician services plan and that is affordable and provides minimum value may advise the employee that the offer of this other plan will, or may, preclude the employee from obtaining a premium tax credit.
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