IRS Proposes Rules on Determining Minimum Value for Health Plans
The IRS issued a proposed regulation on May 3rd on how to determine whether a health plan provides "minimum value." The determination of minimum value affects whether:
- A plan fails to provide minimum value, which would make the Employer or Fund sponsor potentially liable for the associated tax (i.e., $3,000 per employee getting a tax credit); and
- An Employee participating in a plan of less than minimum value can go to an exchange and claim a tax credit.
Finally, the proposed regulation contains design-based safe harbors that would be deemed to offer minimum value.
Action Needed Now: Plan sponsors need to review the proposed rules and decide whether to submit comments which are due by July 2, 2013.
The Affordable Care Act added sections 36B and 4980H to the Internal Revenue Code. Section 36B provides a premium tax credit for eligible individuals who purchase health insurance through an Exchange. Section 4980H provides that a large employer (50 or more employees) that offers health coverage will be charged $3,000 annually for each individual that receives a premium tax credit if the employer's health coverage was either not affordable or does not provide minimum value for essential health benefits. A plan fails to provide minimum value if the plan's share of total allowed costs is less than 60% of the allowed costs.
Earlier this year the Department of Health and Human Services (HHS) issued a regulation that provides that the percentage value provided by a group health plan is determined by dividing (a) the amount the plan would pay for essential health benefits if it covered a standard population by (b) the total expenses that would be incurred for essential health benefits by the standard population. The agencies provided the Minimum Value Calculator (MV Calculator) to be used in determining the percentage of essential health benefits provided by a group health plan. The calculator may be found at http://cciio.cms.gov/resources/files/mv-calculator-final-4-11-2013.xlsm.
In April, the Department of Labor (DOL), along with IRS and HHS, stated that the summary of benefits and coverage notices for 2014 would need to state whether the health plan provided minimum value. (See FAQs Part XIV, Q1.)
The Proposed Regulation
Minimum Value Calculation - General Rule:
The proposed regulation provides that a plan may determine MV using one of the following methods:
- The MV Calculator made available by HHS and IRS;
- One of the safe harbors that is prescribed by the IRS; or
- An acceptable actuarial certification, if the plan has nonstandard features not compatible with the MV Calculator.
Safe Harbor Designs:
In the preamble to the proposed regulation, the IRS suggested three design-based safe harbors and requested comments on them. The following table contains the safe harbors that were suggested:
|Medical/RX Deductible||Plan Cost- sharing percentage||Maximum Out-of-Pocket amount for employee cost- sharing
||70%||$6,400||$500 employer contribution to an HSA|
|$3,500 for medical expenses
75% for drugs
|$6,400||Drug co-pays of $10/$20/$50 for 1st, 2nd, and 3rd tiers
75% coinsurance for specialty drugs
The proposed regulation requires that any actuarial certification must use the MV Calculator for coverage that is measurable by the Calculator, but that the percentage may be adjusted on the basis of an actuarial analysis of plan features for Essential Health Benefits not covered by the MV Calculator.
Treatment of HSAs, HRAs, and Wellness Programs:
In the case of employer contributions to a Health Savings Account (HSA), the proposed regulation provides that employer contributions for the current plan year are taken into account in determining whether the plan provides Minimum Value. For a Health Reimbursement Arrangement (HRA), employer contributions made newly available for the plan year are taken into account in determining Minimum Value if those contributions may be used only to reduce cost-sharing for covered benefits and may not be used for premiums or employee contributions. For both HSAs and HRAs the amount taken into account is the amount of expected spending for health care costs in the plan year.
Regarding wellness programs, the proposed regulation provides that only smoking cessation programs can be taken into account when determining MV, and they will only affect MV when it affects deductibles, copayments, HRA allocations, or other cost-sharing. Individuals can be assumed to take advantage of the program (i.e., earning lower cost-sharing), which in turn increases the portion paid by the plan.
Cheiron Observation: The proposed regulation takes into account smoking cessation but does not take into account other wellness programs. For example, if a plan provides a reduced deductible for those participants who undergo a health risk assessment, the MV calculation will not reflect that feature.
Plan sponsors may wish to determine if their plans provide minimum value under the proposed regulation, and may wish to submit comments. In particular, plan sponsors may want to comment upon the design-based safe harbors and the treatment of wellness programs.
Cheiron consultants can assist in determining whether the plan provides minimum value under the proposed regulation.
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal services or tax advice.