The Government has issued significant guidance that employers must consider as they prepare to manage their potential liabilities under the Affordable Care Act ("ACA"). The pay or play rules under ACA are generally effective for employers January 1, 2014 and the guidance makes it abundantly clear that employers should not wait until late in 2013 to make plans for 2014.
Effective 2014, employers with more than 50 full time equivalent employees may have to pay significant excise taxes (euphemistically called and referred to herein as "shared responsibility payments") if any full-time employee uses a tax credit or a "cost sharing reduction" to purchase health care coverage in a state exchange. There are several ways an employer may manage or ameliorate this liability. Chief among them is to offer all full-time employees the opportunity to enroll in health care coverage that is both "affordable" and provides "minimum value." An employee who has such an opportunity is not eligible for the premium tax credit and therefore, even if he or she purchases coverage on the exchange, such purchase will not trigger a shared responsibility payment.
A plan provides "minimum value" or "MV" if the percentage of "allowed costs" expected to be paid by the plan (and not the employees) in the aggregate is at least 60% of such costs. Employees typically pay costs through such things as deductibles and co-payments. These payments are often called "cost sharing" or "out of pocket". The higher the employees’ cost sharing, the lower the plan’s expected share of the total allowable costs.
In recent guidance, HHS confirmed that this determination is made on an aggregate basis tested against national utilization data and is not on a plan specific basis. Simplistically, if a plan imposes a $1,000 deductible and the national data show that 90% of all individuals in the national database incur annual costs of less than $1,000, then most of the total costs of the plan would be expected to be paid by employees and therefore the plan may in fact not provide MV.
HHS has provided a calculator which may be accessed at http://cciio.cms.gov/resources/regulations/index.html. We encourage all of our clients to access the calculator, input their plan specific design parameters and determine whether the MV for the plan is at least 60%. Presumably if you work with a broker, the broker should be able to help you. If the MV is not at least 60%, plan sponsors will have to decide whether to reduce employee cost sharing or be subject to the shared responsibility payment regime and, in the latter case, plan sponsors will have to consider other ways to reduce the shared responsibility payment liability.
HHS guidance also provides the following alternatives to the MV calculator:
- HHS will establish design base safe harbors that presumably will not require significant number crunching and data input.
- An actuary may certify that the plan provides MV if the plan includes features that are not "suitable" for the MV calculator method or the design based safe harbors.
- A plan in the "small group market" will be deemed to provide MV if it meets any of the levels of coverage (bronze, silver, gold or platinum) of products offered in the exchange.
- Certain amounts paid by the employer into an HSA or HRA are counted as amounts paid by the plan and, therefore, will improve the plan’s MV score.
Comment: With the finalization of the MV rules, together with the earlier finalization of the rules for identifying full time employees, now is the time to start the analysis for 2014.