The Internal Revenue Service has released a proposed rule that provides some guidance on what constitutes minimum value (MV) of an employer-sponsored health plan under the Affordable Care Act (ACA) for purposes of eligibility for a premium tax credit. Under the ACA’s pay-or-play employer responsibility provisions, an employer with 50 or more employees will be subject to a penalty if any employee receives a premium tax credit to purchase health insurance through the future health insurance exchanges. Individuals are not, however, entitled to receive a premium tax credit if they are eligible to receive employer-provided coverage that is affordable and provides MV.
As outlined in final regulations issued in February, a plan will be deemed to provide MV if the percentage of the total allowed costs of benefits provided under the plan is no less than 60 percent. In order to determine whether a plan provides minimum value, an employer-sponsored plan may use the MV calculator provided by the HHS and the Internal Revenue Service, or avail itself of “an array of design-based safe-harbors published by HHS and the Internal Revenue Service in the form of checklists to determine whether the plan provides MV.”
The IRS notes that future guidance will specify certain safe harbor plan designs that satisfy MV. Plan designs meeting the following specifications are proposed as safe harbors for determining MV if the plans cover all of the benefits included in the MV Calculator: (1) a plan with a $3,500 integrated medical and drug deductible, 80% plan costsharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing; (2) a plan with a $4,500 integrated medical and drug deductible, 70% plan costsharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA; and (3) a plan with a $3,500 medical deductible, $0 drug deductible, 60% plan medical expense cost-sharing, 75% plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75% coinsurance for specialty drugs.
The proposed IRS rule provides additional guidance for making the MV determination. According to the IRS, commenters “sought clarification of the health benefits considered in determining the share of benefit costs paid by a plan.” According to the proposal, employer-sponsored self-insured and insured large group plans are not required “to cover every [essential health benefits (EHB)] category or conform their plans to an EHB benchmark that applies to qualified health plans.” To this end, the new proposed regulations “provide that MV is based on the anticipated spending for a standard population. The plan’s anticipated spending for benefits provided under any particular EHB-benchmark plan for any state counts towards MV.”
With respect to health savings accounts (HSAs), the proposal explains:
all amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan’s share of costs for purposes of MV and are treated as amounts available for first dollar coverage. Amounts newly made available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year count for purposes of MV in the same manner if the amounts may be used only for cost-sharing and may not be used to pay insurance premiums.
The proposal also addresses wellness program incentives. Specifically, the proposal states that:
A plan’s share of costs for MV purposes is determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program. However, for nondiscriminatory wellness programs designed to prevent or reduce tobacco use, MV may be calculated assuming that every eligible individual satisfies the terms of the program relating to prevention or reduction of tobacco use.
Similarly, the proposed rule provides that the affordability of an employer-sponsored plan is determined by assuming that each employee fails to satisfy the requirements of a wellness program, except the requirements of a nondiscriminatory wellness program related to tobacco use. The IRS does provide transition relief from these provisions for plan years beginning before January 1, 2015.
Finally, the proposal includes guidance on other miscellaneous issues, including the definition of modified adjusted gross income, retiree coverage, rating areas, coverage for newborns and adoptees, adjusted monthly premium for family members enrolled for less than a full month, premium assistance amount for partial months of coverage, family members residing at different locations, and additional benefits and applicable benchmark plan.
Comments on this proposal are due within 60 days of its publication in the Federal Register, which is scheduled for May 3, 2013. Written comments may be sent to: CC:PA:LPD:PR (REG-125398-12), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Alternatively, comments may be sent electronically via the federal eRulemaking portal.