November 13, 2014
On November 4, 2014, the Departments of Health and Human Services (HHS) and Treasury (collectively, the Departments), issued guidance1 holding that group health plans that do not provide substantial coverage for inpatient hospitalization services, physician services or both do not provide minimum value within the meaning of the Affordable Care Act.2 The Departments issued the Notice to correct a concern that had been raised that the government’s Minimum Value Calculator (“MV Calculator”) could produce a minimum-value plan that excluded these important benefits. The Departments intend to issue proposed regulations soon that incorporate the new guidance. The forthcoming regulations will take effect as soon as they become final, which the Departments expect will be around March 1, 2015. Accordingly, the Departments caution employers against adopting this type of plan for the 2015 plan year.
Some employers had already adopted this type of plan for next year. An exception will be made for a plan already adopted in reliance on the MV Calculator if the employers had entered into a binding written commitment, or had begun enrolling employees, before November 4, 2014 (and the plan year begins no later than March 1, 2015). In that situation, the employer may treat the plan as providing minimum value through the end of the plan year, although it may still need to correct certain statements made to its participants, as discussed below.
In general, a plan provides minimum value if it covers at least 60 percent of the total allowed costs of benefits provided under the plan. Applicable regulations3 allow minimum value to be determined using the MV Calculator,4 applying design-based safe harbors, or obtaining actuarial certification.
The concept of minimum-value coverage matters to both employers and employees. Large employers must offer coverage to their full-time employees that meets both affordability and minimum-value standards, or possibly face penalties under Section 4980H of the Affordable Care Act, if one or more of their full-time employees obtains Marketplace coverage with a premium assistance tax credit. Employees who receive an offer of affordable and minimum-value coverage are not entitled to the premium assistance tax credit. However, an employee who is offered coverage that is unaffordable or that does not provide minimum value may receive the premium assistance tax credit for Marketplace coverage, if otherwise eligible.
An employer with an existing plan that does not cover inpatient hospitalization or physician services (even one established before November 4, 2014) is subject to new rules regarding notices to employees. That employer may not tell employees that coverage under the plan would preclude them from obtaining the premium assistance tax credit. It must also correct on a timely basis any previous disclosures to the contrary. For example, a statement in a Summary of Benefits and Coverage (SBC) that such a plan provides minimum value will be treated as an improper suggestion that the employee is barred from obtaining premium assistance, and must be corrected.
An offer of a non-minimum-value plan does not bar an employee from receiving a premium assistance tax credit if the employee enrolls in Marketplace coverage, instead of the employer’s coverage. The Notice provides that even if the plan was established before November 4, 2014, and the employer qualifies for the exception, the offer of a plan that does not provide significant inpatient hospitalization or physician services will also not bar an otherwise eligible employee from receiving premium assistance.
Employers that want to provide minimum-value coverage to their participants should not adopt plans that do not provide substantial coverage for inpatient hospitalization or physician services for the 2015 plan year. Employers that have already adopted such a plan should review whether they qualify for the temporary relief, and whether they need to correct any statements already made to their employees about the plan. When released, proposed regulations may further clarify what qualifies as “substantial coverage” and other questions left open by the guidance.
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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related guidance, including the guidance summarized in this Capital Checkup. Sibson Consulting can be retained to work with plan sponsors and their attorneys on compliance issues.
2 The Affordable Care Act is the abbreviated name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-148, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)
3 Regulations relating to minimum value include final HHS regulations published in the February 25, 2013 Federal Register and proposed Treasury and IRS regulations published in the May 3, 2013 Federal Register. (Return to the Capital Checkup.)