On May 3, 2013, the Department of the Treasury (IRS) published in the Federal Register proposed rules about how employers should assess the minimum value (MV) of the health care plans they sponsor. While the rules repeated some of what had been presented in previous guidance by the Department of Health and Human Services (DHHS), there were a number of areas that the prior guidance had left uncertain or unaddressed and that these regulations seek to address and clarify.
Determining Minimum Value: General Rules
These regulations reiterated the various methods that are available to employers for determining whether their plans meet the MV criteria under the Affordable Care Act (ACA) (see, below). The general rule under the ACA is that an employer’s group health plan fails to offer MV if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.” DHHS’s final regulations provide that the MV of a group health plan is to be calculated by dividing (i) the costs for the plan’s essential health benefit (EHB) coverage, computed in accordance with the plan’s cost sharing provisions, by (ii) the total costs of EHBs included under a standard self-insured group health plan as determined by DHSS and the IRS, including amounts the employer pays through cost sharing, and (ii) converting the result to a percentage.
One key clarification made by these proposed rules is that as self-insured group health plans and large employer insured group health plans are not required under the ACA to provide any particular set of EHBs, these plans can measure their anticipated EHB spending by looking to the benefits included in any EHB-benchmark plan offered in any state to determine which benefits provided in their plan will be counted as EHBs. Thus, employers have a great deal of flexibility determining the numerator of this fraction, i.e., their plan’s anticipated EHB costs, but the number in the denominator is to be determined by the cost of coverage for all EHBs in a typical or standard self-insured group health plan, as determined by DHHS and the IRS in connection with the MV calculator.
Determining Minimum Value: Specific Methodologies
These regulations reiterate the various ways employer plans can determine their MV percentage that were initially set forth in the DHHS final regulations. These are:
- Employers may utilize the minimum value calculator at the Center for Consumer Information and Insurance Oversight website - http://cciio.cms.gov/resources/regulations/index.html - to determine their plan’s MV.
- Employers may determine MV through a safe harbor checklist established by the DHHS and the IRS.
These proposed regulations, however, go on to provide three safe harbor examples for plans that cover all of the benefits included in the MV calculator: (a) a plan with a $3,500 integrated medical and drug deductible, 80% plan cost-sharing, and a $6,000 out of pocket maximum limit, (b) a plan with a $4,500 integrated medical and drug deductible, 70% cost sharing, and a $6,400 out of pocket maximum, and (c) a plan with a $3,000 medical deductible and a $0 drug deductible, 60% medical cost sharing and 75% drug cost sharing, a $6,400 out of pocket maximum limit and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75% co-insurance for specialty drugs.
- For plans with non-standard features that would put them outside any of the safe harbors, and for which the calculator would not provide an accurate reading, employers could obtain an actuarial certification by a member of the American Academy of Actuaries utilizing accepted actuarial principles and methodologies.
These proposed rules, however, require that to the extent the plan’s benefit design can utilize the calculator to provide an accurate determination, the actuary’s role is limited to determining the actuarial value of those benefits that are not susceptible to determination by the MV calculator.
- For small group market plans, if the plan’s design comports with any of the metal levels of coverage for qualified health plans offered through the state or federal insurance Exchanges, it will be considered as providing MV.
How Do HRAs, HSAs and Wellness Programs Fit In?
The DHHS final regulations did not address how the availability of HRAs, HSAs or wellness programs fit into the MV calculations. These proposed rules address each of these areas and provide some clarity.
- HSAs – All amounts contributed by an employer to an HSA for the current plan year are taken into account in determining the plan’s share of costs for purposes of determining the plan’s MV, and are treated as amounts available for first dollar coverage.
- HRAs – Amounts newly available for the current plan year (i.e., but not amounts in the HRA that were rolled over from prior years) under an HRA that is integrated with an eligible employer-sponsored group health plan count as amounts contributed by the employer, if those contributed amounts can be used only for cost-sharing and not to pay for insurance premiums.
Thus, only some HRA contributions can be included when determining the employer’s share of plan costs. Employers who currently sponsor HRAs might want to review their HRA documentation and make any adjustments in how the HRA is structured, if doing so would make a difference as to whether their group health plan meets the MV requirement.
A corollary to this HRA rule also applies to the determination of whether the employer’s group health plan is affordable. Under this rule, amounts newly available under an HRA for the current plan year that can be used either for premium payments or for cost-sharing reductions are also considered as plan payments, thus making it somewhat easier to have the plan deemed “affordable.”
- Wellness Programs – A plan’s share of costs for MV purposes is determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program – i.e., every participant is presumed to be paying the required contribution and any wellness program reduction or discount is ignored – except that for wellness programs designed to prevent or reduce tobacco use, the MV is calculated by assuming that every eligible person satisfies the terms of the tobacco use reduction/prevention program and is, therefore, entitled to the reduction or discount.
For wellness programs, this same rule applies to determining whether the plan is affordable – i.e., wellness incentives are ignored, except when they are based on tobacco-use, in which case it is assumed that they apply.
A Note on COBRA and Retiree Coverage
These proposed rules provide that former employees who have elected COBRA continuation coverage (or coverage under a state continuation scheme) and former employees entitled to retiree coverage are eligible for minimum essential coverage only for those months that they are actually covered. Active employees eligible for COBRA coverage as a result of reduced hours, however, are subject to the same rules for employer coverage eligibility as are all other active employees.
This clarification affects the individual’s eligibility for premium tax credits or subsidized cost sharing should they choose to obtain coverage through a state or federal insurance Exchange. For active employees, even those entitled to COBRA, their eligibility for the employer provided benefits will be considered when deciding if they are eligible for the tax credits or cost sharing subsidies available through Exchange coverage. On the other hand, for former employees, whether retired or on COBRA, their entitlement to tax benefits through the Exchange is limited only for the months they are actually covered under the employer’s plan. Thus, for former employees it might be cheaper to elect Exchange coverage than employer-provided coverage, as doing so might entitle them to significant tax benefits that would lower the costs of coverage.
A Heads Up On IRC §6056 Reporting
Final regulations under IRC §6056 have not yet been issued, but effective January 1, 2014, under this provision, “applicable large employers” -- i.e., those subject to the play-or-pay excise tax penalties -- will have to file with the IRS a complete listing of every full-time employee who was or was not offered affordable, MV health care coverage for each month of the year. Employers must also furnish a statement to each full-time employee that states whether the employee was offered affordable, MV coverage for each month during the year. Pulling together this information is going to be a strenuous task and may well involve bringing together information from a number of different systems. Some thought should, therefore, be given to this requirement sooner rather than later, even if some adjustments and refinements might have to be made when the final regulations are issued. The good news, modest as it is, is that even though the information on whether an employer is providing MV coverage will be required to be kept on a month-to-month basis, the IRS appears to be leaning towards requiring that it only needs to be reported annually.
Employers who are going through the process of determining their compliance strategies under the ACA should factor this recent guidance into the mix.