(This is an updated version of an article initially published 12-03-14)
To avoid a penalty under IRC section 4980H(b) (one of the “pay-or-play” provisions of the Affordable Care Act, ACA), large employers must offer at least 95% 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 Leavitt article explains “affordability” and the various safe harbors by which an employer can determine if its health coverage is affordable. Basically, coverage is “affordable” in 2017 if each employee’s cost for the lowest-cost self-only coverage is not more than 9.69% of his/her “household income.” (The original affordability percentage was 9.5% but has been indexed annually for inflation. The 2016 rate was 9.66%.) 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 it covers at least 60% of the total allowed costs of benefits that are expected to be incurred under the plan to a standard population. This means that the average 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. Also, the minimum value calculation is not applied on an individual basis. Thus, a particular individual in a MV plan could end up paying more than 40% of the total cost of allowed benefits under the plan.
The requirement to provide at least minimum value has applied to all-size non-grandfathered plans since the beginning 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 in 2013 and 2014 met 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. (See additional detail below under Minimum Value Calculator and Actuarial Value Calculator.)
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 following four methods to determine whether its health plan(s) meets minimum value.
- Minimum Value Calculator and Actuarial Value Calculator (on the HHS website)
- Actuarial certification
- Safe harbors for determining minimum value
- Design-based safe-harbor checklists
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 to determine if its plan provides minimum value or what actuarial value it provides. The third and fourth methods apply only to minimum value calculations, not to actuarial valuations generally. Following the matrix is a more in-depth explanation of each of the methods to determine minimum value.
|Method to Determine MV
|Designation by insurer
|For small group, carrier must specify “precious metal” level the plan provides: bronze=60%; silver=70%; gold=80%; platinum=90%.
|Insurer must specify in Summary of Benefits and Coverage if plan provides MV
|Minimum Value Calculator
|Minimum value (MV) and actuarial value (AV) calculators are posted online at HHS website
|Allows large-group insured and all-size self-insured plans to determine what actuarial value they provide
|Plan or insurer may hire an enrolled actuary to certify that the plan provides at least minimum value and what actuarial value it provides
|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
|Large employer can compare its plan design(s) to those in the safe harbors to determine if its plans provide at least minimum value
|The safe harbors are specified in May 3, 2013 proposed regulations
|Design-based Safe-harbor Checklist
|Each safe harbor checklist will describe the cost-sharing attributes of the four “core” categories of benefits and services. Employers can compare their plans’ coverage to checklists.
|HHS and the IRS have said they will provide these checklists that employers can use to compare to their plans’ coverage
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. 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. However, for a limited time the 4980H penalties will not apply to employers who had entered into a binding written contract for such plan or had begun enrolling employees in such plan prior to November 4, 2014. That time period extends through the end of the plan year (as in effect under the terms of the plan on November 3, 2014) if that plan year began no later than March 1, 2015 (i.e., through February 29, 2016 at the latest). Links to HHS Minimum Value and Actuarial Value Calculators and Methodologies below.
- HHS and IRS revised the MV Calculator and MV Methodology in 2014 and issued new regulations, but they have not issued a new MV calculator since then. HHS issued new AV calculators and methodologies for 2015 and later plan designs, and when it posted the 2015 AV Calculators and Methodology documents it prohibited the use of the 2014 AV calculator after 2014.
- HHS also released MV and AV Calculator Methodologies, which provide detailed descriptions of the data underlying the MV and AV Calculators and their methodology.
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. (These four categories are listed below in section 4 entitled Design-based Safe Harbor Checklists.)
- 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. (As of October 27, 2016, no additional guidance has been issued on this.)
|$3,500 integrated medical and drug deductible
|$6,000 maximum OOP
|$4,500 integrated medical and drug deductible
|$6,400 maximum OOP &
$500 ER contribution to an HSA
|$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, and third 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:
- Physician and mid-level practitioner care,
- Hospital and emergency room services,
- Pharmacy benefits, and
- Laboratory and imaging services.
As of October 27, 2016, HHS and the IRS had not yet issued these checklists.