On April 26, the IRS released three “requests for comment” on various provisions under the Patient Protection and Affordable Care Act (“PPACA” or “health reform”). While the IRS is soliciting comment, it also gave some indication of how it was leaning on each of the issues it addressed. This first post (of three) discusses the comments on the determination of “minimum value.”
Under PPACA, if an employer plan does not provide “minimum value,” then an employee may be eligible for a premium tax credit through the state-based insurance exchanges, if he or she meets the other applicable requirements. If an employee takes advantage of that tax credit, the employer will be subject to “pay or play” penalties under health reform. Therefore, “minimum value” matters. (It is worth noting that HHS previously found that about 98% of individuals covered by employer-sponsored plans were enrolled in plans providing minimum value as described in the IRS guidance.)
In Notice 2012-31, the IRS basically outlined three approaches it may use to determine minimum value:
- The use of an actuarial value or minimum value calculator that will be provided by HHS and the IRS. Using either calculator, employers would enter certain plan information into the calculator (such as benefits, cost-sharing, etc.) and the calculator would determine if the plan provides minimum value.
- Self-funded plans and insured large group plans would be allowed to use the minimum value calculator, which is expected to use claims data reflecting typical self-insured employer plans.
- An array of design-based safe harbors in the form of checklists. Basically, if the employer checks enough boxes on the checklist of available benefits and cost-sharing terms, the plan will be deemed to provide minimum value. The items on the checklists would provide minimum cost-sharing terms for different benefits and the employer could “check the box” if its cost-sharing terms were at least as generous as those on the list.
- For plans with nonstandard features (like quantitative limits on certain “core” benefits, like hospital days) that cannot use the calculators, the employer can obtain a certification by an enrolled actuary.
Actuarial value will be determined based on the health expenses expected to be incurred by a standard population, rather than the population the plan actually covers. Contributions to HSAs and HRAs will be included in determining actuarial value (but apparently not FSAs).
Why the two calculators? HHS is going to establish the methods for determining actuarial value. HHS previously issued an Actuarial Value and Cost-Sharing Bulletin outlining its expected approach in these areas, but regulations will provide final guidance. Those rules will apply to qualified health plans offered in the exchanges and to plans in the individual and small group markets because all of those plans will need to cover all the “essential health benefits” (EHBs) mandated by PPACA. The actuarial value calculator will measure value based on the methods HHS will use to determine value for plans required to cover EHBs.
However, self-insured plans and insured plans in the large group are not required to cover any of the essential health benefits. Therefore, HHS and the IRS will develop the minimum value calculator so that the actuarial value of those plans can be determined without regard to whether or not they cover all of the EHBs. The minimum value calculator will focus on the four categories of benefits that HHS has determined make up the lion’s share of a plan’s actuarial value: (1) physician and mid-level practitioner care, (2) hospital and emergency room services, (3) pharmacy benefits, and (4) laboratory and imaging services.
The IRS has requested comments on these methodologies (including a few specific areas) by June 11, 2012 at the contact information in the Notice. (You can also leave us a comment in the fields below, but we won’t promise the IRS will read it.)