H&W: Minimum Value Calculator and In-Patient Hospitalization

On November 4, 2014, the IRS issued Notice 2014-69 which addresses the question of whether a group health plan that excludes coverage for in-patient hospitalization (hospital and/or provider charges) (IPH) services may use the on-line minimum value calculator to determine whether the plan provides minimum value (MV).

Background

An employee or family member who is offered coverage under an eligible employer-sponsored plan that offers affordable MV coverage for the employee may not receive a premium tax credit in the marketplace exchange for coverage in a qualified health plan.  Insured plans in the small group market are required to offer essential health benefits (EHB), including benefits for in-patient hospitalization services.  However, self-insured plans and insured large group plans are not required to offer EHB or conform to any particular benchmark plan design that may be applicable to small insured plans.  Rather, such plans must use a “safe harbor” plan design or use the minimum value calculator available on the IRS web site. In addition, plans that have “non-standard” features may use an actuarial certification to determine MV.

Failure to Cover IPH

Notice 2014-69 observes that the assumptions used to develop the MV calculator were based on the fact that a typical self-insured plan design would provide substantial coverage for in-patient hospitalization services.  If a plan were to exclude such coverage, it could substantially affect the composition of the covered population by discouraging enrollment by employees who have, or anticipate that they might have, significant health issues, thereby invalidating the underlying actuarial assumptions.

The IRS Notice announces the government’s intention to amend the rules to provide that a plan will not provide minimum value if it excludes substantial coverage for IPH services.  Employers will not be permitted to use the MV calculator or any other method to demonstrate that such plans provide minimum value.

Anticipating that the regulations will become final in 2015, the IRS advises that plan sponsors should not adopt such a plan for the 2015 plan year believing that by doing so they will be deemed to have met the MV requirements and are therefore not subject to play-or-pay penalties.

Exception

The sole exception is for an employer that has entered into a binding written commitment to adopt, or has begun enrolling employees in, a plan that excludes IPH services prior to November 4, 2014 based on the employer’s reliance on the results of use of the MV Calculator.  The IRS anticipates that final regulations, when issued, will not apply (for purposes of Code section 4980H) to such plans 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 qualify for the exception would not be subject to play-or-pay penalties during the exception period; however, employees offered such a plan would still qualify for premium tax credits.

In addition, an employer that offers an employee a plan the excludes IPH services (including a plan that qualifies for the pre-November 4, 2014 exception) (1) must not state or imply in any disclosure that the offer of coverage under that plan precludes an employee from obtaining a premium tax credit, if otherwise eligible, and (2) must timely correct any prior disclosures that stated or implied that the offer of that plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.

Accordingly, any employer that offers or proposes to offer a plan that excludes IPH services should:

• promptly review the plan design to determine the impact of Notice 2014 on the design;
• determine whether the pre-November 4, 2014 exception applies.
• provide the required employee notices, if applicable.