The Internal Revenue Service, in a surprise move Tuesday, said it will not qualify employer-sponsored health plans that fail to cover inpatient hospitalization as meeting the minimum value health plan standard under the Affordable Care Act.
In a notice issued under the public radar on Election Day, the IRS says it, the Treasury Department and the Department of Health and Human Services believe that plans that fail to provide substantial coverage for inpatient hospitalization services or for physician services (or for both) do not provide minimum value intended by the ACAs minimum value requirement. The departments will shortly propose regulations to this effect, with the intention of finalizing them in 2015, the notice adds.
The Obama administration has become aware that certain group health plan benefit designs that do not provide coverage for inpatient hospitalization services are being promoted to employers, the notice says, adding 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.
Promoters of the plans have argued they satisfy the 60% actuarial value definition of minimum value within the meaning of the ACA as determined through use of an online minimum value calculator released by the HHS.
Unfortunately, an apparent glitch in the data underlying the calculations allowed health plans to attain a 60% (or better) actuarial value reading without offering inpatient hospitalization benefits, says Edward Fensholt, director of compliance services for Kansas City, Mo,-based Lockton Benefits Group. That apparent flaw in the calculators methodology ripped a hole in the ACAs conceptual framework that some insurers were quick to exploit.
The allure of these plans to some employers was that they could offer the plans at relatively inexpensive price points and insulate themselves from potential penalties under both prongs of the employer mandate, Fensholt says in a Lockton legal alert.
Closing the loophole
The IRS announcement means that while employers offering these plans will still meet the employer shared responsibility requirement to offer at least a minimum essential coverage plan to 70% or more of its full-time employees and their children, they will not satisfy the second requirement of that rule to offer plans with a minimum value of 60% actuarial value.
The new regulation will allow the staff of these employers who want to obtain more comprehensive coverage from a public health exchange to qualify for a subsidy. It also puts the employer at risk of a penalty if the worker chooses to obtain subsidized coverage in an exchange.
For employers that, as of Nov. 3, 2014, had already enrolled or begun to enroll employees in one of these stripped down health care plans, the IRS will forgive employer mandate penalties through the plan year that begins on or before March 1, 2015.
These plans should not be adopted by any other employers for the 2015 plan year, the IRS notice says, adding an employer will not be permitted to use the HHS minimum value calculator (or any actuarial certification or valuation) to demonstrate that a plan without coverage for inpatient hospitalization and/or physician services provides minimum value.
Employers that are offering one of the pre-Nov. 4, 2014 health care plans through the 2015 plan year end are also instructed not to state or imply to employees that the offer of coverage precludes the employee from obtaining a premium tax credit in a public exchange. Employers must also timely correct any prior disclosures that stated or implied that the offer of coverage precluded an individual from obtaining a subsidy on the exchange.
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