HHS Affirms “Skinny Plans” Do Not Meet Minimum Value Requirement Under ACA

Employer-sponsored health plans must provide substantial coverage of both inpatient hospital services and physician services to meet the minimum value (MV) requirement of the Patient Protection and Affordable Care Act (ACA), HHS has clarified in a final rule. The final rule adopts the IRS’s proposed rule from November 2014 (Notice 2014-69).

The IRS intended Notice 2014-69 to prevent employers from adopting “skinny plans,” meaning group health plans that attempt to meet the MV requirement by covering at least 60 percent of certain medical costs but not inpatient hospital services.

Background. In 2013, HHS published final regulations and the IRS and Treasury issued proposed regulations under ACA Sec. 1302(d)(2), which, among other things, allowed group health plans to determine their MV percentage by using HHS’s MV Calculator. Afterwards, some employers were able to claim that plans without coverage of inpatient hospital services provide MV by adopting a benefit package that, based on standardized actuarial assumptions used in the MV calculator, offset the absence of spending on inpatient hospital coverage with increased spending on other benefits.

Final rule. HHS concluded that the quantitative test for MV is not exclusive. The final rule requires that to meet the MV requirement, an employer-sponsored plan must both meet the quantitative standard of the actuarial value of benefits and provide a benefit package that meets a minimum standard of benefits. This includes substantial coverage of inpatient hospitalization services, something the rule describes as “a critical benefit universally understood to be included in any minimally acceptable employer health plan coverage.”

The final rule generally will not apply before the end of the plan year to plans that before Nov. 4, 2014, entered into a binding written commitment to adopt, or began enrolling employees into, the plan, so long as that plan year begins no later than March 1, 2015. However, the delayed deadline applies only for purposes of applying the Code Sec. 4980H employer penalties. An employee will not be denied the Code Sec. 36B credit if they received or were offered coverage through a skinny plan.

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