Whether a group health plan provides minimum value is central to the application of the Affordable Care Act’s employer shared responsibility rules. The particulars of the role of minimum value in determining assessable payments due from applicable large employers are explained in detail in final regulations issued on February 12 of this year. Simply put, an employee who is offered coverage under an eligible employer-sponsored plan that is both affordable and provides minimum value is ineligible for subsidized coverage from a public insurance exchange. As a consequence, the employer will not be liable for any assessable payments under Internal Revenue Code § 4980H(b) with respect to the employee if the employee declines the employer’s offer of coverage and instead enrolls in exchange-provided coverage.
A recently issued paper published by the American Academy of Actuaries (the “AAA Report”) provides useful background on two important concepts under the Act: actuarial value (AV) and minimum value (MV). The former (AV) plays a key role in establishing the metallic coverage tiers of individual and small group products—Bronze, Silver, Gold, and Platinum—available through public insurance exchanges; and the latter (MV) establishes the level of group health plan coverage that an applicable large employer must offer to avoid penalties under the Act’s employer shared responsibility rules. This post focuses on the “minimum value” concept.
Actuarial Value and Minimum Value
Both AV and MV measure the relative generosity of a group health plan, and use a “standard population” as a starting point. In the case of AV, the standard population is individual and small groups; in the case of MV, the standard population is employer group health plans. A plan with 100% AV or MV would pay the total of all “allowed costs of benefits” provided under the plan in full, with no co-pays, deductibles, co-insurance or other cost sharing features. The metallic levels of coverage offered by public exchanges have AVs of 60% (Bronze), 70% (Silver), 80% (Gold), and 90% (Platinum). Thus, in the case of coverage under a Platinum plan, the plan pays $.90 of every dollar of covered services. Similarly, a Gold plan would pay $.80 of every dollar of covered services, and so on.
Under the Act, a 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% of such costs.” But an MV plan is not the same as a Bronze-level plan offered through a public exchange. Plans offered in the small group market, and policies issued in the individual market, must provide “essential health benefits,” i.e., a set of 10 specified covered services that include: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. (The particulars of what constitutes essential health benefits are determined state-by-state under rules promulgated by the Department of Health and Human Services.) In contrast, large fully-insured groups and self-funded groups, irrespective of size, are not required to provide “essential health benefits.” Nevertheless, the regulators have decreed that MV is determined by dividing:
- The anticipated covered medical spending for essential health benefits coverage by a typical self-insured group health plan (computed in accordance with the plan’s cost sharing rules), by
- The total anticipated allowed charges for essential health benefits coverage for a typical self-insured group health plan population.
Accordingly, under final rules issued by the Department of Health and Human Services (HHS) and the Treasury Department/IRS, MV is determined with reference to essential health benefits. This means, as a practical matter, an MV plan will, at a minimum, have the characteristics of a major medical plan with high levels of cost-sharing.
Rules promulgated by HHS and Treasury/IRS provide four approaches for establishing that a plan provides “minimum value”:
- Minimum value calculators. Employer-sponsored plans may determine their MV by entering information about the cost-sharing features of the plan for different categories of benefits into calculators made available by HHS.
- Design-based safe-harbor checklists. If the employer-sponsored plan’s terms are consistent with or more generous than any one of the safe-harbor checklists, the plan would be treated as providing minimum value.
- Actuarial certification. The calculator may not work for plans with “non-standard features,” e.g., quantitative limits, such as a limit on the number of physician visits or covered days in the hospital. (The AAA Report refers to these plans as “plan designs not accommodated by the AV and MV calculators.) In these instances, employers will be permitted to determine minimum value by first using the HHS online calculator, then engaging a certified actuary to make appropriate adjustments that take into consideration the nonstandard features. Employer-sponsored plans with nonstandard features of a certain type and magnitude would also have the option of engaging a certified actuary to determine the plan’s actuarial value without the use of a calculator.
- Small group plans. Plans offered in the small group market are deemed to provide minimum value by virtue of their mandated plan design.
Employer contributions to a Health Savings Account (HSA) and amounts made available under a Health Reimbursement Account (HRA) are generally included in determining minimum value. For example, a plan with a $1,000 annual HRA contribution and a $1,000 deductible is treated as a $0 deductible.
Wellness program incentives also affect MV. A group health plan’s share of costs for MV purposes is determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program, except that, beginning with the plan year beginning in 2016, in the case of wellness programs designed to prevent or reduce tobacco use, MV is calculated assuming that every eligible individual satisfies the terms of the program relating to prevention or reduction of tobacco use.
Value-Based Plan Designs
Value-based plan design elements can cause a plan to have “non-standard features” for MV purposes, thereby requiring actuarial review. The following are examples of value-based plan designs that may require modifications to the MV calculator’s results in instances where the impact of the design is determined to be “material” (a non-standard plan design feature has a “material” effect if it changes the metal tier or if it changes whether the plan meets the MV threshold):
- Condition-based plan provisions (e.g., reduced cost-sharing to encourage diabetes monitoring/treatment);
- Treatment decisions by insured (e.g., place of service) impacting benefit levels; or
- Wellness incentives in plan design, including employer contributions to HRAs or HSAs that vary based on member involvement in a wellness program.
The AAA Report explains that “it may be sufficient to value the plan based on the least generous cost-sharing options if the resulting value exceeds the required MV since the calculated value will be the lowest expected value for the plan and the test only requires that the plan exceed the MV.” Of course, if the least generous plan option fails the required MV, then “additional calculations/adjustments will be necessary.” For reasons explained in the report, this is not a simple matter.
Reference Pricing Models
In a “reference pricing model” an employer or insurer establishes a maximum payment it will make for a specific service, e.g. knee surgery. (A report by the NIHCM Foundation entitled Reference Pricing: Stimulating Cost-Conscious Purchasing and Countering Provider Market Power, by James C. Robinson, Ph.D., provides a useful primer on reference pricing.) In theory, the reference price is set high enough to ensure that sufficient numbers of providers are available with prices below the limit, yet low enough to restrict reimbursement to the most expensive providers. In practice, however, reference pricing can be used to cap plan costs in ways that some might view as predatory or abusive. In a recent set of Frequently Asked Questions, the Department of Labor (joined by HHS and the Treasury Department) gave voice to concerns over reference pricing in connection with the Act’s rules imposing caps on maximum out-of-pocket limits, saying:
“Reference pricing aims to encourage plans to negotiate cost effective treatments with high quality providers at reduced costs. At the same time, the Departments are concerned that such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.”
The Department of Labor did not establish any separate standard or rule respecting reference pricing. Instead, the department invited “comment on the application of the out-of-pocket limitation to the use of reference-based pricing.” The department went on to state that it is “particularly interested in standards that plans using reference-based pricing structures should be required to meet to ensure that individuals have meaningful access to medically appropriate, quality care.”
While the AAA Report does not address the matter, reference pricing would in all likelihood constitute a non-standard plan feature for MV calculation purposes. Thus, adjustments to MV would be required in cases in which the effect of the reference pricing is deemed to be material. Presumably, a reference price that is “set high enough to ensure that sufficient numbers of providers are available with prices below the limit, yet low enough to restrict reimbursement to the most expensive providers” would not result in a material adjustment, but a predatory or abusive reference price would.