If it Seems Too Good to be True – IRS Notice on Minimum Value Plans
In order to avoid the pay or play penalties, employers must provide a plan that provides “minimum value.” A minimum value plan does not have to cover all essential health benefits, but must have an actuarial value of at least 60%. HHS issued a calculator that plan sponsors can use to determine if their plan provides minimum value. Some insurers used this tool to create plans that provide a minimum value but have large holes in coverage. One popular product being peddled is a minimum value plan that provides for no inpatient hospitalization. As you can imagine, these plans are very cheap and would allow virtually all of the cost to be passed through to employees while still being considered “affordable.” While many employers were resistant to provide a plan to employees that didn’t cover basic hospitalization but would prohibit the individual from receiving a premium tax credit, other employers thought these plans were too good to be true.
Well as my dad has told me for years, if it seems too good to be true, it probably is. Today, the IRS issued a Notice stating that HHS intends to issue regulations in the near future that will provide that plans that don’t provide for inpatient hospitalization or physician services will not be allowed to rely on the minimum value calculator or an actuarial certification that these plans provide “minimum value.” Unlike most guidance that gives time to comply, the IRS states that these rules are intended to be effective at the time they are finalized, which is expected to be in 2015. This means that employers who have put these plans in place for 2015 may be subject to pay or play penalties for not offering minimum value plans in 2015.
Don’t freak out though if you have already entered into a contract to provide this type of coverage or if you have already begun enrolling employees in such a plan. The Notice states that the regulations should provide limited relief to those employers who have entered into a binding written commitment to adopt, or has begun enrolling employees in, a plan providing for non-hospital or non-physician services prior to November 4, 2014, as long as the plan year begins no later than March 1, 2015. If you were considering this strategy but haven’t yet adopted it, it is time to go back to the table and re-strategize how you can avoid or minimize your pay or play penalties.