Employer plans that do not provide hospital coverage do not provide minimum value

The IRS has issued proposed regulations providing that an eligible employer sponsored 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). The proposed regulations are a response to reports that certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services were being promoted to employers as plans that satisfy minimum value (MV) requirements as determined through use of the on-line MV calculator (known as “skinny” plans). The proposed regulations will apply for plan years beginning after November 3, 2014. However, for purposes of the employer shared responsibility provisions, the changes to the minimum value regulations may not apply before the end of the plan year beginning no later than March 1, 2015.

Background. An employee or family member who is offered coverage under an eligible employer-sponsored plan that offers affordable MV coverage is not eligible to receive a premium tax credit under Code Sec. 36B for coverage in a qualified health plan. An applicable large employer (as defined in Code Sec. 4980H(c)(2)) may be liable for a shared responsibility assessment if one or more of its full-time employees receives a premium tax credit. 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 (the minimum value percentage) is at least 60 percent. Several methods are available to determine minimum value: (1) the MV calculator, available online; (2) any safe harbors established by the IRS and HHS; (3) an actuarial certification; or (4) meeting any of the levels for metal coverage (bronze, silver, gold, or platinum).

Technically, it would have been possible for an employer to design a plan that satisfied the MV calculator but did not provide coverage for inpatient hospitalization or physician services. An offer from an employer with one of these less expensive plans could adversely affect employees by preventing the employee from getting subsidized coverage on the Exchange while simultaneously shielding the employer from being assessed a penalty. Notice 2014-69 advised taxpayers of the intent of the IRS and HHS to propose regulations providing that plans that fail to provide substantial coverage for inpatient hospitalization or physician services do not provide minimum value.

HHS released final regulations amending its definition of minimum value coverage to include this change. The HHS regulations provide 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 inpatient hospitalization and physician services.

Proposed regulations. Under these proposed regulations, the IRS incorporates the substance of the rule from the HHS regulations. They provide that 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 inpatient hospital and physician services.

These regulations are proposed to apply for plan years beginning after November 3, 2014. However, for purposes of section Code Sec. 4980H, the changes to the minimum value regulations do not apply before the end of the plan year beginning no later than March 1, 2015 to a plan that fails to provide substantial coverage for in-patient hospitalization services or for physician services (or both), provided that the employer had entered into a binding written commitment to adopt the noncompliant plan terms, or had begun enrolling employees in the plan with noncompliant plan terms, before November 4, 2014. For this purpose, the plan year is the plan year in effect under the terms of the plan on November 3, 2014. Also for this purpose, a binding written commitment exists when an employer is contractually required to pay for an arrangement, and a plan begins enrolling employees when it begins accepting employee elections to participate in the plan. An employee will not be required to treat a non-hospital/non-physician services plan as providing MV for purposes of an employee’s eligibility for a premium tax credit under Code Sec. 36B, whether or not the plan is a pre-November 4, 2014, non-hospital/non-physician services plan.

Comments requested. Comments are requested on rules for determining whether a plan provides “substantial coverage” of inpatient hospital and physician services. Comments may be sent to: CC:PA:LPD:PR (REG-143800-14), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.

SOURCE: 80 FR 52678, September 1, 2015.

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