In a series of three notices, the IRS has signaled the approach that it may take on certain key issues arising under the employer shared responsibility, or “pay or play,” provisions of the Affordable Care Act (ACA) and is seeking comment on these and other questions. All of the matters discussed in the notices will ultimately be addressed in regulations.
Under the Affordable Care Act, an employer with more than 50 employees will be subject to an excise tax if any of its full-time employees obtains subsidized coverage through a state insurance exchange. This subsidy is unavailable where an employer offers the employee affordable group health coverage that meets certain standards. These standards include a requirement that the coverage provide at least “minimum value,” meaning that “the plan’s share of the total allowed costs of benefits provided under the plan” must be at least 60 percent of such costs.
This requirement has fostered considerable debate about the meaning of “total allowed costs,” with some employer groups advocating a strict reading of the statute that would base these costs on the coverage actually provided under the applicable employer plan and not require a plan to provide “essential health benefits,” as that term is defined in the ACA and subsequent guidance.
In addressing approaches that employers might follow to determine whether their plans provide minimum value, Notice 2012-31 offers employers what appears to be constrained freedom with respect to plan design. The notice confirms that self-funded and large insured health plans are not required to offer all essential health benefits or even benefits in each of the 10 essential categories identified in the ACA. However, the notice also suggests that “total allowed costs” will be determined by reference to standards the government establishes based on what applies in the relevant market.
The government applies these norms in creating mechanisms for employers to determine whether a plan satisfies the minimum value requirement. The notice describes three possible mechanisms for making that determination:
- An employer may enter certain data regarding coverage and cost-sharing under its plan into a calculator designed by the government. The information that may be entered will relate to four core coverage categories—physician and mid-level practitioner care; hospital and emergency room services; pharmacy benefits; and laboratory and imaging services. The calculator will make the minimum value determination.
- An employer may compare its design against safe-harbor checklists that account for at least the four core coverage categories.
- For a plan with nonstandard features that preclude use of a calculator or safe harbor checklists (including quantitative limits on physician visits and hospital stays), an employer may engage an actuary to certify that the plan provides minimum value.
The notice further clarifies that self-funded and large insured health plans will be able to take into account employer contributions to an HSA or HRA in line with guidance that the U.S. Department of Health and Human Services has issued for determining the actuarial value of qualified health plans for state health insurance exchange purposes.
Given the effect that the definition of “total allowed cost” could have on plan design, plan sponsors concerned about the new guidance may seek a clearer statement of the standards that will apply in the regulations that have been promised or otherwise.
In Notices 2012-32 and 2012-33, the IRS requests comments on various issues pertaining to certain Affordable Care Act reporting requirements that employers will need to meet about the coverage that they provide. The rules relate to reports that will need to be filed with the IRS and provided to employees beginning in 2015.