It has been announced by the Internal Revenue Service (IRS) that the Department of Health and Human Services (HHS) and the Treasury Department (collectively, the Departments) will be issuing 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), as defined under Code Sec. 36B(c) (2) (C) (ii) (and final HHS regulations). An applicable large employer (ALE) that fails to comply with the minimum value requirements could be subject to a shared responsibility assessment under Code Sec. 4980H. The announcement of the up-coming regulations, according to the IRS, is in response to certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services that are being promoted to employers. It is being argued that the plans satisfy minimum value (MV) requirements as determined through the use of the on-line MV calculator.

Employer sponsored insurance plans that offer employees coverage for doctor visits and prescription medicines without requiring corresponding hospitalization coverage have been approved by the calculator, leading some benefit experts to believe that the MV calculator is malfunctioning. Whether the continuance tables underlying the MV calculator, and thus the MV calculator, produce valid actuarial results for unconventional plan designs that exclude substantial coverage for in-patient hospitalization services is a concern of the IRS. It has been suggested that these and other effects resulting from excluding substantial coverage of in-patient hospitalization services may not be adequately taken into account by the MV Calculator and its underlying continuance tables.

For an employer-sponsored plan to be considered eligible and providing minimum value, the plan’s share of the total allowed costs of benefits provided to the employee (the minimum value percentage) must be at least 60 percent. 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 will determine the minimum value percentage.

Several methods are available to employers to determine minimum value (under the final HHS regulations and Proposed Reg. Section 1.36B-6):

  • The MV calculator, available online
  • Any safe harbors established by the IRS and HHS
  • An actuarial certification from the American Academy of Actuaries
  • Meeting requirements for any of the levels for metal coverage (bronze, silver, gold, or platinum) in the small group market

Proposed amendments to regulations relating to minimum value as stated in Notice 2014-69

An amendment to 45 CFR 156.145 is being proposed by the HHS to provide that a plan will not provide minimum value if it excludes substantial coverage for in-patient hospitalization services or physician services (or both). Both the Treasury and the IRS intend to apply the proposed regulations under Code section 36B. An employer will not be permitted to use the MV Calculator (or any actuarial certification or valuation) to demonstrate that a non-hospital/non-physician services plan provides minimum value, under the HHS and Treasury regulations.

The proposed changes to regulations are anticipated to 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 rather than being delayed to the end of 2015 or the end of the 2015 plan year. As a result, it is suggested that a non-hospital/non-physician services plan (other than a pre-November 4, 2014 non-hospital/non-physician services plan) not be adopted for the 2015 plan year.

Pending announcement of final regulations, an employee is not required to treat a non-hospital/non-physician services plan as providing minimum value for purposes of an employee’s eligibility for a premium tax credit under Code section 36B, regardless of whether the plan is a pre-November 4, 2014 non-hospital/non-physician services plan.

Employer Duty to Inform Employees

An employer that offers a non-hospital/non-physician services plan (including a pre-November 4, 2014 non-hospital/non-physician services plan) to an employee must:

  • Not state or imply in any disclosure that the offer of coverage under the non-hospital/non-physician services plan precludes an employee from obtaining a premium tax credit, if otherwise eligible
  • Timely correct any prior disclosures that stated or implied that the offer of the non-hospital/non-physician services plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.

Without such a corrective disclosure, a statement (for example, in a summary of benefits and coverage) that a non-hospital/non-physician services plan provides minimum value will be considered to imply that the offer of such a plan precludes employees from obtaining a premium tax credit. However, it is 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 is allowed to advise the employee that the offer of this other plan will or may preclude the employee from obtaining a premium tax credit.