Applicable large employers (ALEs) must offer employer sponsored coverage that is both affordable and provides minimum value to their employees and dependents. Failure to provide this coverage subjects the employer to penalties.
Generally, coverage provides minimum value if the employer sponsored plan is expected to cover, on average, at least 60% of health care costs (i.e., the plan has an actuarial value of at least 60%). The IRS has provided a minimum value calculator to help plans determine if they meet this standard. However, the online calculator allowed certain stripped down health plans to attain the 60% actuarial value limit without offering inpatient hospitalization benefits so the final rule eliminates this potential.
On February 27, 2015, Final regulations eliminated this loophole and confirmed that an employer-sponsored plan must provide substantial coverage of both inpatient hospital services and physician services. Plans that omit these types of coverage fail to meet the minimum value health plan standard under the Affordable Care Act.
Per the final rule:
“These designs have been promoted as a way of both minimizing the cost of the plan to the employer (a consequence not only of excluding inpatient hospitalization benefits but also of making an offer of coverage that a substantial percentage of employees will not accept) and avoiding potential liability for employer shared responsibility payments. By offering coverage that is affordable to the employee and that purports to provide MV, employers adopting these plan designs were seeking, to deny their employees the ability to obtain a premium tax credit that could result in the employer becoming subject to a section 4980H employer shared responsibility payment.”
Countdown to Compliance
The publishing of this final rule started a 60 day countdown to when minimum value plans without “substantial inpatient benefits” will be out of compliance. April 28, 2015 is the date when the rule becomes effective and by which time plans must meet the compliance requirements.
For employers that, as of November 3, 2014, had already enrolled or begun to enroll employees in one of the stripped down health plans, the IRS will not enforce employer mandate tax penalties through the plan year that begins on or before March 1, 2015. In addition, employees of companies offering such plans will not be excluded from qualifying for premium tax credits this year.
Additional Background: Notice 2014-69