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Narrow “Minimum Value” Plans To Be Short-Lived Under the ACA

Source:  United Benefit Advisors, LLC

As the saying goes, necessity is the mother of invention…provided the invention meets IRS rules. Around the time it became apparent that the Affordable Care Act (ACA) would survive the
challenges to its very existence and, in particular, the employer shared responsibility (ESR) provisions under IRC 4980H, a number of creative approaches to plan design began to emerge seeking to address employers’ concerns about rising costs and avoiding ESR penalties. One of those approaches, known by some as “narrow minimum value plans” or “narrow MV plans,” would have enabled employers to offer employees a significantly lower cost health plan, but still one that provided “minimum value” and could more easily be made “affordable” to employees. The catch was that these plans did not cover services for in-patient hospitalization services or for physician services (or both). For this basic reason, and despite the fact that such a design could be crafted to provide “minimum value” as determined under the government-provided minimum value calculator, these plans will not be considered to provide minimum value, according to IRS Notice 2014-69 (the Notice).

The Notice states that in-patient hospitalization and physician services are “fundamental benefits that are nearly universally covered, and historically have been considered integral to coverage, under typical employer-sponsored group health plans.” In essence, the Departments of Treasury and Health and Human Services (the Departments) expected that minimum value plans would include coverage for these fundamental services, even if the Departments’ intentions were not as clear in earlier guidance. Allowing such plans to be considered as providing minimum value, the Notice contends, might discourage enrollment by employees who have, or anticipate that they might have, significant health issues, calling into question the MV calculator’s usefulness as an actuarial tool for such unconventional plans.

So, the Departments intend to issue proposed regulations making their intentions about narrow minimum value plans clear, and finalize those regulations in 2015. However, the Notice provides
some relief for employers that may have already entered into one of these arrangements. Specifically, if an employer entered into a binding written commitment to adopt, or has begun enrolling
employees in what the Notice refers to as a “NonHospital/Non-Physician Services Plan” prior to November 4, 2014, based on the employer’s reliance on the results of use of the MV calculator
(which the Notice refers to as a “Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan”), the Departments anticipate that final regulations will not be applicable for purposes of ESR penalties with respect to the plan before the end of the plan year (as in effect under the terms of the plan on November 3, 2014) if that plan year begins no later than March 1, 2015. Employers that believe they fit into this temporary relief should confirm and document its application. For employers to which the relief does not apply, they will need to make appropriate adjustments to their health plan offerings in order to avoid potential ESR penalties.

But that is not all. Employees will not be required to treat Non-Hospital/Non-Physician Services Plans as providing minimum value for purposes of eligibility for a premium tax credit, even if the plan is a PreNovember 4, 2014 Non-Hospital/Non-Physician Services Plan. To ensure employees better understand these distinctions, the Notice requires that employers offering a Non-hospital/NonPhysician Services Plan (including a Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan) must: (1) not state or imply in any disclosure that the offer of coverage under the Non-Hospital/NonPhysician Services Plan precludes an employee from obtaining a premium tax credit (this includes, for example, a statement in a summary of benefit and coverage that the Plan provides minimum value), if otherwise eligible, and (2) timely correct any prior disclosures that stated or implied that the offer of the Non-Hospital/Non-Physician Services Plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.