(New guidance alert, view the updated version published 10-28-2016)
To avoid a penalty under the “pay-or-play” provisions of the Affordable Care Act (ACA), large employers must offer most of their full-time employees (and their dependents) health benefits that provide at least “minimum value” and that are “affordable” as defined in regulations. This article explains the ways by which an employer can determine if its health plan provides at least minimum value (MV).
Note: A separate article explains “affordability” and the various safe harbors by which an employer can determine if its health coverage is affordable. Basically, coverage is “affordable” if each employee’s cost for the lowest-cost self-only coverage is not more than 9.5% of his/her “household income.” This coverage must provide at least minimum value. Regulations provide three “safe harbors” for Affordability: 1) W-2 income (Box 1) for the current year, 2) Rate of pay as of the first day of the plan year (130 x hourly rate of pay), or 3) 100% of the mainland Federal Poverty Line for an individual.
Under Code section 36B(c)(2)(C)(ii), a plan provides “minimum value” (MV) if the plan’s share of the total allowed costs of benefits provided under the plan is at least 60% of the costs. This means that the employee pays—via deductibles, coinsurance, copayments and other out-of-pocket amounts—no more than 40% of the actuarial value of benefits under the plan. The minimum value calculation does not take into account premiums, but only benefits paid under the plan.
The requirement to provide at least minimum value applies to all-size non-grandfathered plans as of the 2014 plan year. Small insured plans also must meet specific actuarial values (i.e., 60%, 70%, 80% or 90%, plus or minus 2 percentage points), but large insured and all size self-insured plans are not required to meet any specific actuarial values but must provide a minimum of at least 60% actuarial value. Based on statements by HHS (in the preamble to the proposed regulations on Essential Health Benefits and Actuarial Value), most group health plans currently meet the 60% actuarial value requirement. An example of an employer plan that would not meet the 60% requirement is a plan that purports to provide minimum value but does not provide substantial coverage for hospitalization services or physician services.
Determining Minimum Value
Often, a Carrier or Third Party Administrator can simply confirm whether a plan meets minimum value. Alternatively, a plan sponsor (typically the employer) may use one of the four methods listed below to determine whether its health plan(s) meets minimum value. The calculators, safe harbors and safe harbor checklists are free of charge; however, if a plan or issuer hires an actuary to provide an actuarial certification, it will have to pay for the services of the actuary.
A plan sponsor can use either of the first two methods listed below to determine if its plan provides minimum value or what actuarial value it provides. The third and fourth methods below apply only to minimum value calculations, not to actuarial valuations generally.
1) Minimum Value Calculator and Actuarial Value Calculator (on the HHS website):
HHS posted an online Minimum Value (MV) Calculator and a separate but similar online Actuarial Value (AV) Calculator. The MV Calculator allows large group insured and all-size self-insured plans to determine whether they provide at least minimum value and what actuarial values they provide. To use the MV Calculator, an employer must enter information about its health plan’s benefits, coverage of services and cost-sharing terms. The AV Calculator applies for small group insured plans, so they can calculate their specific actuarial value. HHS also released MV and AV Calculator Methodologies, which provide detailed descriptions of the data underlying the MV and AV Calculators and their methodology. Links to these are below and at the end of this article.
After the HHS online MV Calculator was released, several vendors created and marketed plans that technically (but barely) met MV using the online Calculator, but the plans provided limited or no coverage for hospitalization, physician services, prescriptions and most or all essential health benefits. The plans generally rated 60.1%-63% using the HHS on-line MV Calculator. As a result, On November 4, 2014, HHS and Treasury issued guidance (Notice 2014-69) clarifying that employer group health plans that purport to provide minimum value (MV) but that do not provide coverage for in-patient hospitalization services and/or for physician services (referred to as “Non-Hospital/Non-Physician Services Plans”) do not provide the minimum value intended by the minimum value requirement. The IRS Notice warns employers that they cannot rely on the MV Calculator result as protection from the Code section 4980H penalties, if their plans do not provide substantial coverage for inpatient hospitalization or for physician services.
HHS and IRS plan to revise the MV Calculator and MV Methodology and to issue new regulations. The revised MV Calculator has not yet been posted on the HHS website, but links to the 2014 versions are below. HHS has also posted AV Calculators and Methodology documents for 2015 and prohibits the use of the 2014 calculators after 2014.
The HHS webpage with both MV and AV information is at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/index.html#PlanManagement
The 2014 Minimum Value Calculator is at http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/mv-calculator-final-4-11-2013.xlsm
The 2014 Minimum Value Calculator Methodology is at http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/mv-calculator-methodology.pdf
Links to the 2014 and 2015 Actuarial Value Calculators and Methodology papers are at the end of this article. A draft 2016 AV Calculator and Methodology was released for comment on November 21, 2014 and can be accessed from the HHS webpage listed above, under the section entitled Plan Management/Guidance.
2) Actuarial Certification:
A plan sponsor or carrier may request certification by an enrolled actuary to determine if the plan provides minimum value (or to determine the plan’s specific actuarial value).
- A plan may be required to hire an enrolled actuary if the plan contains nonstandard features that preclude the use of the MV Calculator and safe harbor checklists. Nonstandard features would include quantitative limits (for example, limits on covered hospital days or physician visits) on any of the four core categories of benefits and services.
- If a plan uses the MV Calculator and offers an essential health benefit (EHB) outside of the parameters of the MV Calculator, the plan may hire an actuary to determine the value of that benefit only and add it to the result derived from the MV Calculator (for the standard benefits) to reflect that value.
- Also, to determine minimum value, employer-sponsored health plans may account for any benefits covered by the employer that are also covered in any one of the EHB-benchmark plan options in any state.
3) Safe Harbors for Determining Minimum Value
On May 3, 2013 proposed regulations were issued on minimum value and other aspects of the Aﬀordable Care Act (ACA). One provision of these proposed regulations offered the following plan designs as safe harbors to determine minimum value if the plans cover all of the benefits included in the HHS online MV Calculator. Using the safe harbors means a large employer does not have to use the more complicated online MV calculator. Instead, a large employer can compare its plan design(s) to those in the safe harbors (below) to determine if its plans provide at least minimum value.
In order to use these safe harbors, plans must provide all categories of benefits included in the online MV calculator. The benefits in the MV Calculator include the 10 categories of essential health benefits (EHB), plus preventive care/screening/immunization and skilled nursing facility benefits. Large employer plans are not required by the ACA to provide EHBs, but many of them do, so for those employers this safe harbor option is available. Future guidance may specify additional safe harbor plan designs that will provide MV.
|Safe Harbors||Deductible||Cost-Sharing||Out-of-Pocket Maximum|
|Plan One||$3,500 integrated medical and drug deductible||80%||$6,000 maximum OOP|
|Plan Two||$4,500 integrated medical and drug deductible||70%||$6,400 maximum OOP &$500 ER contribution to an HSA|
|Plan Three||$3,500 medical deductible and $0 drug deductible||60% for medical and 75% for drug expenses; drug co-pays of $10/$20/$50 for the first, second, andtheir Rx drug tiers, and 70% coinsurance for specialty drugs||$6,400 maximum OOP|
4) Design-based Safe Harbor Checklists:
In addition to the safe harbors above, HHS and the IRS have said they will provide design-based safe harbors in the form of checklists that employers can use to compare to their plans’ coverage. If a plan’s terms are consistent with or more generous than any one of the safe harbor checklists, the plan will be treated as providing minimum value. This method would not involve calculations or using the online MV calculator, and it could be completed without hiring an actuary. These checklists would, however, be more complicated than using the simple safe harbors above.
Each safe harbor checklist will describe the cost-sharing attributes of the four “core” categories of benefits and services:
o Physician and mid-level practitioner care,
o Hospital and emergency room services,
o Pharmacy benefits, and
o Laboratory and imaging services.
As of December 3, 2014, HHS and the IRS had not yet issued these checklists.
How HSA and HRA Amounts Affect Minimum Value
HSAs and Minimum Value: The proposed rule noted above regarding the MV safe harbors also allows employer current-year contributions to a health savings account (HSA) to be taken into account when determining a health plan’s minimum value.
HRAs and Minimum Value: The proposed rule noted above regarding the MV safe harbors also provides that amounts newly made available under an integrated health reimbursement arrangement (HRA) that may be used only for cost-sharing are also taken into account in determining if the plan provides minimum value. However, HRA amounts will not count toward minimum value if they may be used to pay premiums or if they can be used to pay premiums and cost-sharing. In that case, the HRA amounts count toward affordability and not minimum value.
Links to 2014 and 2015 Actuarial Value Calculators and Methodologies:
The 2014 Actuarial Value Calculator is at http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/av-calculator-final.xlsm
The 2014 Actuarial Value Calculator Methodology is at http://www.cms.gov/CCIIO/Resources/Files/Downloads/av-calculator-methodology.pdf
The 2015 Actuarial Value Calculator is at http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-av-calculator-final.xlsm
The 2015 Actuarial Value Calculator Methodology is at http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-AV-Calculator-Methodology.pdf