The Affordable Care Act (ACA) requires larger employers to satisfy a two-pronged employer mandate or risk penalties. The first prong requires the employer to offer at least “minimum essential coverage” (MEC) to 70 percent or more (95 percent or more after 2015) of its full-time employees and their dependents. An employee that enrolls in this coverage satisfies the ACA’s individual mandate. The second prong requires that employers offer health coverage or face an annual $3,000 nondeductible penalty, on an as-applicable basis for any employee whose offer of employer coverage is unaffordable or not sufficiently comprehensive (e.g., health coverage that does not satisfy “minimum value”) – provided that person then qualifies for tax credits on the exchange.
This means if an employee is covered by affordable “minimum value” coverage, the employee is not eligible for a premium tax credit or subsidy to purchase insurance coverage in the health care reform marketplace.
“Minimum value” coverage refers to coverage where the plan’s share of the total allowed costs of benefits provided under the plan is at least 60 percent of those costs. Many employers were determining whether their plan was minimum value by utilizing the Department of Health and Human Services (HHS) minimum value (MV) calculator. The calculator was designed to measure overall plan value and give employers a “safe harbor” if they could show the 60 percent threshold had been satisfied.
In 2014, it was discovered that there was a glitch in HHS’ calculator. The glitch allowed plans to be designed in a manner that technically met the minimum value requirements without providing any coverage for in-patient hospital services and/or physician services. In response, the IRS issued Notice 2014-69 last November advising that HHS' and IRS' positions are that plans which fail to provide substantial coverage for in-patient hospitalization services, for physician services, or for both, do not provide minimum value in accordance with the statute. On February 27 of this year, the HHS issued final regulations requiring that an eligible employer-sponsored plan provides minimum value only if, in addition to covering at least 60 percent of the total allowed costs of benefits provided under the plan, the plan benefits include substantial coverage of in-patient hospitalization and physician services.
NOTE: The 2014 guidance provided transition relief for employers who, before November 4, 2014 either:
- Had already enrolled or had begun enrolling their employees in a minimum value plan without hospitalization, or
- Had entered into a binding written commitment to adopt one.
In the 2014 guidance, the IRS allowed employer minimum value plans without hospitalization meeting these conditions to be insulated from the employer mandate requirement of offering minimum value coverage. This relief is available through the end of a plan year beginning on or before March 1, 2015. For example, an employer with a calendar year plan is protected through the end of its 2015 plan year (Dec. 31, 2015). In addition, the IRS doesn’t view the employer’s offer of a minimum value plan without hospitalization meeting the above conditions as disqualifying the employee from subsidies in a public health insurance exchange.
In a supplemental notice issued on August 31, the IRS provides that when determining premium tax credit eligibility, "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 is at least 60 percent and the plan provides substantial coverage of in-patient hospital and physician services." (Emphasis added) The IRS is specifically requesting comments on rules for determining whether a plan provides "substantial coverage" of in-patient hospital and physician services.
What an employer needs to know:
- Employers should review their plans to ensure their “minimum value” plans provide for in-patient hospitalization/physician services
- Employers who previously met the conditions for offering minimum value plans without hospitalization must recognize that relief will end for their 2016 plan year
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