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Agencies Disallow Several Plan Designs; Other Federal Developments

Originally posted on November 13, 2014 at  https://www.ubabenefits.com.
The upcoming employer-shared responsibility (“play or pay”) requirements have spawned a number of different approaches to meeting the requirement that large employers offer coverage or pay penalties. Last week, the agencies responsible for administering the Patient Protection and Affordable Care Act (PPACA) issued several FAQs and notices that prohibit several of the approaches that some have been marketing. In addition, the election and a recent decision by the U.S. Supreme Court to hear a case that challenges the premium tax credits (also called subsidies) that are available to many under PPACA may change the health care reform landscape.
Group Health Plans That Do Not Cover Inpatient Hospital or Physician Services
Beginning in 2015, large employers must offer affordable, minimum value coverage to their full-time employees or potentially pay a penalty. Some companies have been marketing a plan that they state satisfies the minimum value requirement (an actuarial value of 60%), based upon a calculator provided by the Department of Health and Human Services (HHS), even though the plan does not cover inpatient hospital charges. In Notice 2014-69, HHS and the IRS state that plans that do not provide substantial coverage for physician and inpatient hospital services will not be considered minimum value plans, and that the result obtained through the HHS calculator should not be considered valid since that calculator was built on the assumption that a traditional plan design would be used. The agencies do recognize that some employers have already implemented these plans based on the calculator results, and the Notice states that a limited exception will be available to those employers. To be able to use the exception:
  1. The employer must have had a binding written commitment (such as a signed agreement) in place before November 4, 2014, to adopt this type of a plan, or it must have begun to enroll employees in this type of a plan before that date.
  2. The plan must have a plan year (generally, an effective date) that begins on or before March 1, 2015.
  3. The employer must not state or imply in any employee communications that availability of the plan that does not provide coverage for inpatient hospital stays or physician services will prevent the employee from receiving a premium tax credit, and it must correct any previous communications to that effect (note that this may mean that a Summary of Benefits and Coverage may need to be reissued).
Employees who are offered coverage under one of these “non-hospital/non-physician services plans” will be eligible to receive a premium tax credit, as long as the other criteria to receive a tax credit are met. However, employers that can meet the limited exception will be considered to have offered minimum value coverage for the 2015 plan year and will not owe a penalty for the 2015 plan year even if the employee receives a premium tax credit. Beginning in 2016 non-hospital/non-physician services plans will not be considered minimum value for any employers, so employers that qualify for the limited exception will be subject to penalties on employees who receive a premium tax credit unless they offer more complete coverage.
This notice only applies to plans that claim to offer minimum value coverage even though they do not provide significant coverage for inpatient hospital and physician services. Although some have reported that “skinny” and “MEC” plans are no longer allowed, that is not correct. Plans that limit coverage to preventive care (often referred to as “skinny” or “MEC” plans) are permitted and appear to meet the criteria to be considered “minimum essential coverage.” Employers may continue to offer a non-hospital/non-physician services plan, and that plan likely will meet the requirement to offer minimum essential coverage, but it will not meet a requirement to offer minimum value coverage.
Employer Reimbursement of Premiums for Individual Coverage
In both Notice 2013-54 and in a Q and A issued in May 2014, the regulatory agencies have said that an employer’s payment or reimbursement of premiums for individual coverage violates PPACA. The prior releases left some room for debate over whether payment of individual premiums was allowed on an after-tax basis, but Questions 1 and 3 of the Frequently Asked Questions – The Affordable Care Act Implementation Part XXII issued on November 6, 2014, make it clear that both pre-tax and after-tax payment or reimbursement of individual premiums, whether through a Section 125 plan or a health reimbursement arrangement (HRA) or other Section 105 plan, are not allowed. The take-away for employers should be that almost any type of employer involvement in offering a method of paying or reimbursing premiums for individual coverage will create an impermissible “employer payment plan,” which carries significant penalties for the employer. Any type of employer reimbursement through an employer payment plan also will make the employee ineligible for a premium tax credit.
It has long been the rule that an employer may offer taxable compensation to employees, so an employer that does not wish to offer group coverage could simply offer a cash bonus to all employees and encourage — but not require — them to purchase health coverage. However, an employer may not offer a cash bonus only to those who buy individual coverage. This rule only applies to purchase of individual coverage, whether through or outside the Marketplace — it does not apply to employer contributions toward the purchase of group health coverage.
Incentivizing Employees in Poor Health to Enroll in the Marketplace
Question 2 of the November 6 Frequently Asked Questions states that an employer that provides a financial incentive to encourage an individual expected to have large claims to enroll in the Marketplace instead of the group health plan violates the requirement that a plan not discriminate against an individual because of the person’s health status. This practice will be considered a violation of the health status nondiscrimination rules, regardless of whether the incentive is made on a pre-tax or after-tax basis, and even if the individual chooses a Marketplace policy without any employer involvement beyond the financial incentive.
Supreme Court Agrees to Rule on Availability of Premium Tax Credits
Premium tax credits are only available to individuals who obtain health coverage through a Marketplace. A dispute has arisen as to whether the IRS has the ability to interpret PPACA to allow the subsidy to individuals who obtain coverage through any Marketplace, or whether the language of PPACA limits eligibility to those who have obtained coverage through a state Marketplace. The U.S. Supreme Court has agreed to rule on whether premium tax credits may only be available to individuals who receive tax subsidies as a result of being enrolled in a state exchange. In the meantime, the IRS has stated that it will continue to issue tax credits to individuals in both state and federally-run Marketplaces.
If the Supreme Court decides the IRS rule that tax credits are available regardless of what type of Marketplace is in place, the current system will remain in effect. However, if it rules that tax credits are only legally available to individuals enrolled in state Marketplaces, that decision will have significant consequences, since only about one-third of the states are running their own Marketplace, while the federal government runs the Marketplace for the remaining states. If premium tax credits are only allowed in states with their own Marketplace, most Americans will become ineligible to receive the tax credits. Well over half of the people currently enrolled in a Marketplace are receiving a tax credit. Additionally, an employer owes the play or pay penalty only if an employee receives a tax credit.
If the Supreme Court rules that premium tax credits are only available to individuals enrolled in state Marketplaces, employers should expect that states that have chosen to provide coverage through the federally-run Marketplaces will be under pressure to transition to state Marketplaces from those who have benefitted from the subsidized Marketplaces. Those that are benefitting from subsidized coverage include the individuals receiving premium tax credits, hospitals that are experiencing less unreimbursed care, and insurers that have invested in providing coverage through the Marketplaces. Similarly, states that have state Marketplaces may be pressured to move to a federally-run Marketplace by employers trying to avoid penalties. Debate is already occurring as to what, exactly, is needed to qualify as a state Marketplace should a state wish to move in that direction. Employers with employees located in multiple states could have to manage a situation in which some employees are eligible for tax credits and others are not.
The decision of the Supreme Court is expected in late June 2015.
Republican Control of Congress
With last week’s election, the Republican Party gained control of the Senate and kept control of the House of Representatives. Democrats still control the White House, and the Republicans do not have enough votes to override a presidential veto, so although the Republicans have stated that they will again attempt to repeal PPACA, as a practical matter outright repeal seems extremely unlikely. Republican control of both Houses of Congress does increase the possibility of revision or elimination of parts of the law — candidates for repeal include the medical device tax, the definition of “full-time” as 30 hours per week, the individual mandate and the employer-shared responsibility requirement. Repeal or modification of these requirements is far from certain, however, as the new Congress will not even be seated until January 2015, and it remains a distinct possibility that the parties will remain so unwilling to work together that gridlock will continue. Further, much of PPACA is being implemented through regulations, over which Congress has limited control. Employers should continue to comply with PPACA, including the upcoming employer-shared responsibility requirement and defining employees who average 30 or more hours per week as full-time, unless and until the President signs a law that changes this provision.