United States

The IRS modifies Affordable Care Act minimum value requirement

TAX ALERT  | 

Under the Affordable Care Act (ACA), employers may be subject to employer shared responsibility penalties if they do not offer affordable, minimum value health coverage to all full-time employees. The definition of “minimum value” is changing due to new regulations proposed by the IRS on Sept. 1, 2015.

Previously, a health plan met the minimum value requirement if it was designed to cover at least 60 percent of the total allowed costs of benefits provided under the plan. Employers could use the on-line Minimum Value Calculator developed by the IRS and Health and Human Services (HHS) to determine whether their plans met the minimum value requirement.

However, certain promoters began designing health plans that met the 60 percent minimum value calculation even though the plans did not provide coverage for inpatient hospitalization services or certain physician services. In response to this type of plan design, on Nov. 4, 2014, the IRS released a notice indicating that it and HHS intended to update its regulations to provide that unless a plan covers substantial hospitalization and physician services, the agencies will not deem the plan to provide minimum value. This notice warned employers not to adopt such plan designs for the 2015 plan year.

On Feb. 27, 2015, HHS issued regulations indicating that health plans that do not provide substantial coverage of inpatient hospital services and physician services do not meet the minimum value standard. The IRS has now followed suit with its own proposed regulations that it is issuing with a view towards stopping this type of plan design.

Under the IRS proposed regulations for plan years beginning on or after Nov. 4, 2014, a health plan will provide minimum value if both of the following criteria are met:

  • The plan’s share of the total allowed costs of benefits provided to an employee is at least 60 percent
  • The plan provides substantial coverage of inpatient hospitalization services and physician services

There is a special transition rule through the end of the plan year for a plan that fails to provide substantial coverage of inpatient hospitalization services and/or physician services if the plan meets all of the following:

  • The plan’s year started on or before March 1, 2015
  • The employer had entered into a binding written commitment to adopt the plan or had begun accepting employee elections to participate in the plan prior to Nov. 4, 2014
  • The plan’s share of the total allowed costs of benefits provided to an employee is at least 60 percent

Employers should review their plans for compliance with the new minimum value standards.

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