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Group Health Plans That Do Not Cover Inpatient Hospital or Physician Services

Source: United Benefit Advisors, LLC

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.

To get the latest information on other plan designs being disallowed—such as employer reimbursement of premiums for individual coverage, incentivizing employees in poor health to enroll in the marketplace, and more—download UBA’s PPACA Advisor, “Agencies Disallow Several Plan Designs; Other Federal Developments”.