On May 3, 2013, the IRS issued proposed regulations (the “Regulations”) regarding the health insurance premium tax credit (“Credit”) enacted under PPACA and the determination of the minimum value of health coverage (“MV”) provided by an eligible employer-sponsored plan (“Plan”). Under PPACA, individuals generally cannot receive a Credit if they are eligible for coverage under a Plan that is “affordable” and provides MV. Certain large employers may be subject to a penalty under PPACA’s “play or pay rule” if a full-time employee receives a Credit. A Plan fails to provide MV if the Plan’s percentage share of the total allowed costs of benefits provided is less than 60 percent. The Regulations address the treatment of various benefit arrangements, including integrated health reimbursement arrangements and nondiscriminatory wellness programs, in the determination of a Plan’s percentage cost share for MV purposes and the affordability of the Plan’s coverage. Notably, with respect to wellness programs, the Plan’s cost share is determined without regard to reduced cost-sharing incentives available thereunder (i.e., the Plan cannot count incentives paid), except that for such programs designed to prevent or reduce tobacco use, and MV may be calculated assuming that every eligible individual qualifies for the incentive. The Regulations further provide that, in regard to wellness incentives affecting the cost of premiums paid by an individual for Plan coverage, “affordability” is determined by assuming that every individual fails to qualify for the incentive (i.e., the premiums paid by the individual will appear higher), except in the case of a wellness program related to tobacco use whereby the assumption is made that every eligible individual meets the requirements for the incentive. Transitional relief, however, is provided in the Regulations for Plan years beginning prior to January 1, 2015, which permits special treatment of wellness program incentives for purposes of assessing penalties under the “play or pay rule.” The Regulations address other considerations related to the Credit and MV under the Internal Revenue Code, including methods for calculating MV, determinations of the “standard population” used in the MV calculation, and the treatment of retiree coverage as minimum essential coverage. The Regulations are proposed to apply for taxable years ending after December 31, 2013, but may be applied for taxable years ending before January 1, 2015.
A link to the Regulations is available here.