In-Patient Hospitalization And “Minimum Value” Under The ACA

HIGHLIGHTS:

• The IRS, DOL and HHS issue guidance on calculating minimum value under the Affordable Care Act for plans not offering substantial coverage for in-patient hospitalization or physician services.
• Employers need to review plans for hospitalization and related physician care services and reassess whether their plans provide “minimum value.”

The Patient Protection and Affordable Care Act – more commonly known as the Affordable Care Act (ACA) – imposes many requirements on group health plans, including, among others, that plans must provide “minimum value” (MV) in accordance with the Internal Revenue Code¹ (Code). The MV rules require that group health plans cover at least 60 percent of the benefit costs provided under the plan. If a covered plan does not provide MV, a participant is eligible for coverage in a healthcare exchange and may be entitled to a premium tax credit. If the plan of a covered employer does not provide MV, the employer will have to pay a fine of $3,000 for every full-time employee under the ACA that obtains coverage in an exchange and receives a premium tax credit.

Employers, brokers and advisors working with group plans recently determined that plans providing limited or no hospitalization and related physician services met the requirements for MV, according to the minimum value calculator provided by the applicable government agencies. After discovering this defect, the government agencies issued Notice 2014-69 to correct this problem and provide limited transition relief.

Notice 2014-69 Addresses the MV Shortfalls

Notice 2014-69 provides the following:

1. The Internal Revenue Service (IRS), the Department of Labor (DOL), and the Department of Health and Human Services (HHS) will issue final regulations that will correct the MV calculator so that plans not providing substantial in-patient hospitalization or physician services (or both) will not pass the MV requirements.
2. It is anticipated that the final regulations will take effect in 2015 immediately upon issuance and apply to 2015 plan years.
3. Notably, Notice 2014-69 indicates that agencies “anticipate” that the final regulations will exempt employers from applicable ACA penalties for the pending plan year if the employer’s plan is a so-called “Pre-November 4, 2014 Plan.”
4. Employees covered by a plan not providing a proper level of in-patient hospitalization/physician services will continue to be eligible for a premium tax credit under Section 36B of the Code regardless of whether the applicable plan provides MV under the defective MV calculator and without regard to whether the plan is a Pre-November 4, 2014 Plan.

A Pre-November 4, 2014 Plan is a plan that meets all of the following criteria:

1. An employer entered into a binding written commitment to adopt or has begun enrolling employees in a plan prior to November 4, 2014.
2. The employer relied on the defective MV Calculator in its design.
3. The plan’s terms as in effect on November 3, 2014, are not otherwise modified.
4. The plan year begins no later than March 1, 2015.

Notice 2014-69 indicates the final regulations will be applicable in 2015 and only Pre-November 4, 2014 Plans will escape the application of the final regulations. Based on the pending impact of the final regulations, employers should proceed with great care in assessing whether their respective plans meet the Pre-November 4, 2014 Plan requirements and whether changes to their plans to incorporate substantial in-patient hospitalization/physician services can still be made. Finally, Notice 2014-69 also provides that employers are obligated to correct or modify any employee/participant disclosures that indicate plans with inadequate in-patient hospitalization/physician services provide MV in light of Notice 2014-69.

Action Items to Be Compliant with Notice 2014-69

Employers should take the following steps in light of Notice 2014-69:

1. Review applicable plans to determine whether substantial in-patient hospitalization/physician services are provided under their plans.
2. If substantial in-patient hospitalization/physician services are not provided under their plans, determine whether the plans are Pre-November 4, 2014 Plans.
3. Assess whether defective plans that are not Pre-November 4, 2014 Plans can be modified quickly to incorporate substantial in-patient hospitalization/physician services.

Footnotes

^{1.Section 36B(c)(2)(C)(ii)}