Employer Plans That Do Not Provide Inpatient Hospital Coverage Do Not Provide Minimum Value: IRS

 

Employer plans that do not provide coverage for inpatient hospitalization services or physician services (or for both) do not provide minimum value under the rules of the Patient Protection and Affordable Care Act (ACA), according to the IRS in Notice 2014-69. The IRS notes that the Department of Health and Human Services (HHS) will shortly propose regulations on this issue and finalize them in 2015, making them applicable upon finalization. For any employers that have already entered into a binding written commitment to adopt, or have begun enrolling employees in, a plan that does not provide inpatient hospital coverage or physician services, prior to November 4, 2014, the IRS and HHS anticipate that final regulations, when issued, will not be applicable under the ACA rules with respect to the plan before the end of the plan year, if the plan year begins no later than March 1, 2015.

Background. Over the last several months, employee benefits brokers have been marketing so-called “skinny plans,” which provide employers with a way to avoid the employer shared responsibility assessable payments under the ACA by offering full-time employees plans that do not provide coverage for inpatient hospital coverage or physician services. A glitch in the federal minimum value calculator (MV calculator) used to determine whether an employer-sponsored plan provided minimum value was providing these low-coverage plans with a minimum value of 60 percent.

Minimum value. In the Notice, the IRS states that, “A plan that fails to provide substantial coverage for these services would fail to offer fundamental benefits that are nearly universally covered, and historically have been considered integral to coverage, under typical employer-sponsored group health plans.” Therefore, plans that fail to provide substantial coverage for inpatient hospitalization services or for physician services will not be considered to provide minimum value, and an employer will not be permitted to use the MV calculator to demonstrate that these plans provide minimum value.

Transition relief. The HHS will shortly issue proposed regulations on this issue, and plan to finalize the regulations in 2015. The final regulations will be effective on the date of finalization, so the IRS warns that as of November 4, 2014, employers should not adopt these plans for the 2015 play year. However, employers that have entered into a binding agreement will not be penalized for relying on the MV calculator if the agreement was entered into before November 4, 2014, and the plan year begins prior to March 1, 2015.

For employers that are offering a plan that does not provide inpatient hospital coverage or physician services, the IRS requires that the employer: (1) must not state or imply in any disclosure that the offer of coverage under the low-coverage plan precludes an employee from obtaining a premium tax credit, if otherwise eligible; and (2) must timely correct any prior disclosures that stated or implied that the offer of the plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.

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