IRS Slams Door on MV Plans w/out Hospital/Physician Services

IRS Slams Door on MV Plans w/out Hospital and/or Physician Services
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    November 6, 2014  IRS Slams the Door on MV Plans Without Hospital and/or Physician Services   On November 4, 2014, the Departments of Health and Human Services, the Treasury, and Internal   Revenue Service (collectively, “the Departments”) announced their intent to issue regulations   clarifying that a group health plan will not provide minimum value (“MV”) if it excludes substantial   coverage for in-patient hospitalization services or physician services (or both). Thus, subject to a narrow exception, such arrangements cannot be used to avoid penalty exposure   under Code § 4980H (“the employer mandate”). Beginning in 2015, a large employer  1 may be subject to a penalty when group health plan coverage   is offered to at least 95% (70% for 2015) of full-time employees (“FTEs”) 2 and their dependent   children but the coverage is not of a MV or affordable 3 and one (or more) FTEs receives a subsidy   to purchase health insurance coverage in the Marketplace ( the “B” penalty  ). 4  1 Generally, an employer that had 50 or more FTEs (including full-time equivalent employees) in the preceding calendar year is considered an applicable large employer. This status is determined on an annual basis and requires aggregating all employees within a controlled group. For 2015, there is transition relief available to employers with fewer than 100 FTEs that will delay the penalty provision until 2016.  2  A full-time employee (FTE) means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer. An employer may use 130 hours of service in a calendar month as a monthly equivalent.  3 Coverage is affordable if the cost for self-only coverage does not exceed 9.5% of household income for the lowest cost MV plan. As employers generally will not know an employee’s household income, the regulations provide three safe harbors that employers may rely upon to satisfy the affordability requirement (W-2, rate of pay, and federal poverty level safe harbors).  4 The “A” penalty applies when a large employer does not offer at least 95% of FTEs (70% for 2015) and their dependent children a group health plan and at least one FTE receives a subsidy in the Marketplace to purchase qualified health plan coverage. The “A” penalty is $166.67/month (or $2,000/year) multiplied by the total number of FTEs - 30 (80 for 2015).     The penalty is $250/month (or $3,000 annually) multiplied by each FTE who receives a subsidy in   the Marketplace to purchase health insurance coverage. 5  MV means a plan that covers at least 60% of the total allowed cost of benefits that are expected to   be incurred by the plan. The Departments provide several ways for a plan to determine MV   including:  §   MV calculator   §   Safe harbor designs  §    Actuarial certification  Some vendors used the MV Calculator to create arrangements that met MV (60%) but excluded   certain core benefits, notably in-patient hospitalization and/or physician services. If acceptable,   such a program could operate to insulate the employer from penalty exposure and preclude   otherwise eligible employees from accessing subsidies in the Marketplace. Given that certain core   benefits were excluded from coverage, concerns were raised whether this was an appropriate use   of the MV calculator consistent with the guidance. In response to these arrangements, the Departments issued Notice 2014-69, which provides the   following guidance.  §   Non-Hospital/Non-Physician Services Plan are not MV . A group health plan that excludes   in-patient hospitalization services or physician services (or both) does not provide MV. These   arrangements are referred to as Non-Hospital/Non-Physician Services Plans.  §   Final regulations are expected by March 1, 2015 and will be effective as of that date . The   regulations are expected to be finalized on or around March 1, 2015, and apply as of that date.   Unless an exception applies, employers should not adopt a Non-Hospital/Non-Physician   Services Plan for the 2015 plan year.  §   A very limited exception is available to certain employers . If, and only if, an employer with   a plan year that begins on or before March 1, 2015 has entered into a binding written   commitment to adopt or has begun enrolling employees in a Non-Hospital/Non-Physician   Services Plan prior to November 4, 2014, will it not be subject to employer mandate penalties.   Employers qualifying for this relief have a “Pre-November 4, 2014 Non-Hospital/Non-Physician   Services Plan.”  §   Subsidies remain available to eligible individuals and employers have a duty to inform.  Employees offered coverage under a Non-Hospital/Non-Physician Services Plan remain eligible   for premium subsidies in the Marketplace (to the extent otherwise eligible). The employer must   not state or imply in any disclosure that the employees are precluded from obtaining subsidies   in the Marketplace based on this coverage and the employer must correct any communication   that states or implies that such a credit would not be available (e.g., the SBC). This includes a   Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan. 6  5 The maximum penalty is capped at the “A” penalty, the penalty that applies when the employer is considered to not offer coverage.  6 Without such a corrective disclosure, a statement (for example, in a summary of benefits and coverage (SBC)) that a Non- Hospital/Non-Physician Services Plan provides MV will be considered to imply that the offer of such a plan precludes employees from obtaining a premium tax credit. However, an employer that also offers an employee another plan that is not a Non-Hospital/Non-Physician Services Plan and that is affordable and provides MV is permitted to advise the employee that the offer of this other plan will or may preclude the employee from obtaining a premium tax credit.     §   Non-Hospital/Non-Physician Services Plans should not be implemented for 2015 as a   mechanism to avoid penalties under the employer mandate  §   However, if prior to November 4, 2014 you were under a binding commitment and/or enrolling   participants in a Non-Hospital/Non-Physician Services Plan for a 2015 plan year that begins on   or before March 1, 2015, you may continue the arrangement for the 2015 plan year and will not   be subject to the “B” penalty for offering non-MV coverage. However, this relief is limited and   employers will need to comply with the final regulations for the next plan year.  ¬ If offering such coverage, employers should review any communications to ensure they   have not 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. Employers should correct any such statements or implications.  For the Notice, visit: . *Note: All of this is subject to change based on government regulations.
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