Employee Benefits Compliance, Minimum Value

MV Plans must Provide Substantial Coverage of Hospitalization & Physician Services

leavitt employees

IRS proposed regulations issued Aug 31, 2015 provide that group health plans will not be deemed to meet the minimum value standard unless they provide substantial coverage of inpatient hospitalization and physician services and also meet or exceed the 60 % actuarial value standard.  (Prop. Regs. Section 1.36-B6(a).)

If this sounds like old news, that’s because it sort of is.  The IRS said the same thing in a notice it issued on February 27th of this year, which also stated the IRS’s intent to issue regulations on this.  The proposed regulations issued at the end of August officially withdraw and replace the 2013 IRS proposed regulations. The 2013 regulations only included the 60% actuarial value requirement, not also the requirement to provide substantial physician and hospitalization services.

Sounds confusing?  Well, here’s the background.

In 2013 the IRS issued proposed regulations (under Code section36B) and HHS issued final regulations defining minimum value requirements for group health plans.  Both sets of rules provided that a group health plan meets minimum value requirements if:

  • Anticipated spending for “essential health benefits” (EHB) under the plan
  • Equals or exceeds 60% of anticipated total allowed charges for EHB for a standard population covered by a typical self-insured group health plan.

For this purpose a plan can define EHBs using any state’s definition of EHBs for plans in the individual and small group markets.

HHS published an on-line calculator plans could use to determine if they met the minimum value standard.  However, some issuers and plan administrators figured out how to barely meet the 60% actuarial value without providing coverage for physician services or inpatient hospitalization, services that have always been considered core benefits under major medical plans.  These plans usually had an actuarial value of 60.1% – 62%, which they reached by front-loading and paying 100% for coverage of other less expensive benefits such as office visits.

In response to these end runs around the minimum value rule, the IRS issued the February 2015 notice referenced above, stating its intention to amend the 2013 regulations to require coverage for those services as part of the minimum value standard.  At the same time, HHS issued proposed regulations amending the definition of minimum value, and then finalized that rule in the 2016 benefit and payment parameter rule. [http://www.gpo.gov/fdsys/pkg/FR-2015-02-27/pdf/2015-03751.pdf ]

Why it Matters if Employer Group Health Plans Provide Minimum Value

The reason it matters whether a plan provides minimum value is because of the criteria that determine whether an individual qualifies for a subsidy to buy coverage in the marketplace.  US citizens and legal residents qualify if they have modified adjusted household income of 100-400% of the federal poverty level and they do not otherwise have minimum essential coverage available, such as an employer group health plan or a government plan.  An employer can prevent its employees from qualifying for a subsidy—and protect itself from a potential penalty under Code section 4980H(b)—by offering all full-time employees coverage that is affordable and provides minimum value.  If an employer provides coverage that is affordable and purports to provide minimum value, but does not cover inpatient hospitalization and physician services, employees in poor health who need such services will be prevented from receiving a subsidy for a marketplace plan that actually cover these core benefits.

Effective Date

There are several different effective dates, for different purposes and for the original and new components of the minimum value rule.

  • For purposes of determining an individual’s eligibility for premium tax credits, the new definition of minimum value applies for plan years beginning on or after November 3, 2014.
  • This date also applies for purposes of determining whether a large employer may be subject to penalties, except that:
    • the additional minimum value requirements (inpatient hospitalization and physician services) will not apply until the end of the plan year beginning after March 1, 2015, for group health plans that, before November 4, 2014, either:
  • entered into a binding contract for a minimum value plan that did not provide coverage of inpatient hospitalization and physician services, or
  • had begun enrolling employees in such a plan.
  • For all purposes, the initial rule requiring the 60% actuarial value applies as of December 31, 2013, the original effective date in the 2013 proposed regulations.

In the August 31, 2015, proposed rule, the IRS also requested comments (due by November 2, 2015) on how to determine whether a plan provides “substantial coverage of inpatient hospitalization and physician services” and any other issues.