Overview:

On November 4, 2014, the Internal Revenue Service (IRS) released guidance (Notice 2014-69) clarifying that certain group health plans that do not provide for hospitalization services or physician services or both will fail to satisfy the minimum value requirements for purposes of the employer mandate of the Affordable Care Act (ACA).  This means employers that do not qualify for transition relief and offer such health plans will not be considered to meet the requirements of the employer mandate and may be subject to a penalty.

Limited transition relief is provided for employers that, prior to November 4, 2014, have entered into a binding written commitment to adopt, or have begun enrolling employees in, a group health plan that does not provide for hospitalization or physician services.  In addition, employees who otherwise qualify for a premium tax credit at a state or federally-run health insurance exchange will still qualify for such credit if offered coverage that does not provide for hospitalization or physician services.

Background

The employer mandate requires employers to, among other things, provide minimum essential coverage that provides minimum value and is affordable to their full-time employees or pay a penalty if an employee not offered such coverage goes to a state- or federally-run health insurance exchange and qualifies for a premium tax credit under section 36B of the Internal Revenue Code (Code).  ACA regulations require plans to determine "minimum value" by using a safe harbor or a calculator issued by the Department of Health and Human Services (HHS).  Previously, the calculator allowed a plan to meet "minimum value" even if it did not provide for hospitalization or physician services.

Notice 2014-69 provides that HHS and the IRS intend to promptly amend regulations to provide that a plan will not provide "minimum value" if it excludes "substantial coverage" for in-patient hospitalization services or physician services or both.  The IRS has stated that it expects to issue final regulations in 2015, and that the rules will be effective on the date final regulations are issued – not at the end of the plan year. 

Limited Transition Relief

Limited transition relief is provided to employers that, prior to November 4, 2014, have entered into a binding written commitment to adopt, or have begun enrolling employees in, a group health plan that does not provide for hospitalization or physician services or both.  The transition relief applies only to employers that start their 2015 plan year before March 1, 2015.  The transition relief will last until the end of the employer's 2015 plan year.

Employees Offered Non-Hospitalization/Non-Physician Plans Eligible for Subsidies

Pending final regulations, employees who are otherwise eligible for premium tax credits at a state- or federally-run health insurance exchange under section 36B of the Code will still be eligible for such subsidies if offered a group health plan that does not provide for hospitalization or physician services.

Employee Notice Required

An employer that provides a group health plan that does not include coverage for hospitalization or physician services (including employers that qualify for transition relief):

  • Must not state or imply in any disclosure that the offer of coverage under the plan precludes an employee from obtaining a premium tax credit at a health insurance exchange if the employee is otherwise eligible; and
  • Must timely correct any prior disclosures that state or imply that the plan would preclude an employee from obtaining a premium tax credit at a health insurance exchange if the employee is otherwise eligible.

An employer that also offers an employee another plan that is not a non-hospital/non-physician services plan that is affordable and provides minimum value is permitted to advise the employee that the offer of this other plan will or may preclude the employee from obtaining a premium tax credit.

Employers' Bottom Line:

Employers should take steps now to ensure the group health plans they offer meet the IRS guidance requirements on hospitalization and physician services and, if they do not, should determine whether they meet the transition relief rules. Employers whose group health plans do not meet the requirements also should revise their employee disclosures as discussed above.