New guidance from the IRS and HHS aims to quickly scuttle the use of health plans designed to push the limits of minimum value. These plans (sometimes referred to in the market simply as “minimum value plans,” “MVPs,” or “MV lite”) aimed to reduce cost by excluding coverage for key benefits, such as physician services or inpatient hospitalization, but were nonetheless said to provide minimum value because they qualified under the MV calculator.
The Concept. The idea behind MVPs was to create a plan that would allow a large employer to avoid all penalties under the ACA’s employer shared responsibility mandate at relatively low cost. As minimum essential coverage that provided minimum value, an MVP would allow a large employer to avoid all penalties, so long as the plan was affordable. And due to the relatively low cost, employers could make MVPs affordable with little or no premium subsidy.
But the effect of MVPs was not limited to penalty avoidance by employers. Employees who are offered coverage under an affordable, minimum value plan are ineligible for premium tax credits (PTCs) through state and federal exchanges, even if they turn down the employer-sponsored coverage. And with MVPs, this meant employees could be knocked out of PTC eligibility with an offer of coverage under a plan that intentionally excluded a significant category of benefits (e.g., inpatient hospitalization). This may well have been their undoing.
MV Calculator. Why did this seem to work? It all came down to the MV calculator. Final HHS regulations and proposed IRS regulations said that if a plan qualified under the MV calculator as providing minimum value, it was deemed to provide minimum value for various purposes, including the employer shared responsibility mandate. And nothing in the design of the MV calculator required a plan to cover a particular category of benefits. This approach was considered early in the process of designing the MV calculator (four “core” categories of benefits were identified), but the final guidance did not reflect a requirement to cover any particular benefits, so long as the MV percentage could be achieved.
Hospitalization and Physician Services Are Required. The new guidance announces a shift in this position, unequivocally stating that “plans that fail to provide substantial coverage for in-patient hospitalization services or physician services (or for both) . . . do not provide minimum value”. IRS and HHS intend to issue regulations soon to reflect this view, and expect to have final guidance completed by about March 1, 2015. Reliance on the MV calculator alone will not be sufficient to establish that a plan provides minimum value, if the plan excludes coverage for physician services or inpatient hospitalization.
MVP Grandfathering Rule. Although MVPs pushed the envelope, there was a fair degree of legal justification for them. Final regulations from HHS simply did not require coverage of any particular category of benefits in determining whether a plan provided minimum value. So there is a grandfathering rule to protect employers who adopted an MVP in reliance on the available guidance, but it is very narrow.
The MVP grandfathering rule essentially protects employers who had adopted or begun enrolling employees in an MVP prior to November 4, 2014. So long as the plan year is not changed after November 3, 2014, an employer can rely on a plan as being an MV plan through the end of a plan year beginning no later than March 1, 2015, if the plan qualified under the MV calculator. Here is the actual grandfathering rule (which awkwardly identifies a grandfathered MVP as a “Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan”):
"[S]olely in the case of an employer that has entered into a binding written commitment to adopt, or has begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan prior to November 4, 2014 based on the employer’s reliance on the results of use of the MV Calculator (a Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan), the Departments anticipate that final regulations, when issued, will not be applicable for purposes of Code section 4980H with respect to the plan before the end of the plan year (as in effect under the terms of the plan on November 3, 2014 ) if that plan year begins no later than March 1, 2015."
An Immediate Halt to New Planning. While the MVP grandfathering rule is helpful to employers who have already pulled the trigger on implementing an MVP, it will stop other planning involving MVPs dead in its tracks. Employers who had merely been thinking about offering an MVP will be precluded from moving forward, if they had not already entered into a binding written commitment to adopt the plan.
No Impact on PTC Eligibility. The MVP grandfathering rule is also limited in that it only treats MVPs as providing minimum value for purposes of employer penalties under the employer shared responsibility rules (a/k/a “play-or-pay”). Employees that have been offered coverage under a grandfathered MVP may decline that coverage and will not be precluded from qualifying for a PTC.
Disclosure Requirement. An employer that offers a plan that excludes coverage for physician services or inpatient hospitalization must not “state or imply in any disclosure” that coverage under the plan will preclude an otherwise-eligible employee from qualifying for a PTC. And to the extent prior disclosures regarding such a plan indicated that the plan would preclude an otherwise-eligible employee from qualifying for a PTC, the employer must “timely” (undefined) correct that prior disclosure. The guidance specifically notes that issuing an SBC saying that a plan provides minimum value will be treated as a prior disclosure that coverage under the plan would preclude PTC eligibility, thereby triggering the correction obligation.
What Does This Mean for Other Employers? This guidance is clearly important for employers who have been pursuing use of an MVP, but what about everyone else? There is some learning in this for them too. Key takeaways include:
- There’s always value in applying a “smell test” to any planning ideas or options that are presented. An argument can often be made for why or how a particular idea is allowable under the law. But if something seems too good to be true, it’s worth taking a hard look at the bona fides and carefully evaluating whether the potential benefits exceed the potential risks.
- Regulators will take swift action to cut off planning that they consider overreaching. Employers may not be penalized for acting within the limits - even the outer limits - of the law. But it may be a short ride, as it will be for employers who have implemented MVPs for 2015. Which could leave those employers in the uncomfortable position of having to immediately re-tool a newly announced program.
A copy of the guidance (Notice 2014-69) is available here.