Agencies Target Employer Health Plans Without Hospitalization, Physician Services

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By Sue Doyle

Nov. 4 — The federal government fired a warning shot at employers offering group health plans that don't provide coverage for inpatient hospitalization or physician services.

The Internal Revenue Service and the departments of Treasury and Health and Human Services said Nov. 4 that they are teaming up to soon propose regulations about plans that lack these types of benefits, long considered integral to coverage under typical employer-sponsored group health plans.

“The Departments believe that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both),” the agencies said in Notice 2014-69, “do not provide the minimum value intended by the minimum value requirement.”

Because of the Affordable Care Act and its employer shared responsibility rules, some low-cost plans are being used to fulfill the employer coverage requirement and avoid penalties.

Minimum Value

The agencies said they have become aware that certain group health plan benefit designs without this coverage are being promoted to employers.

Promoters of these plans argue that these plan designs satisfy the minimum value within the meaning of the ACA, including under tax code Section 36B and final HHS regulations (RIN 0938-AR03) issued in February 2013.

The minimum value is determined through the use of the online MV Calculator, referred to in the final rules and in proposed Treasury regulations (REG-125398-12), the IRS said.

But the IRS said questions have been raised as to whether the tables underlying the MV Calculator produce valid actuarial results for unconventional plan designs that exclude major coverage for inpatient hospitalization services. The standard population and other assumptions used in developing the MV Calculator and associated tables are based on basic self-insured employer-sponsored plans, which historically have included coverage for these services, the agency said.

“Designing a plan to exclude such coverage could substantially affect the composition of the population covered by discouraging enrollment by employees who have, or anticipate that they might have, significant health issues,” the agencies said in the guidance.

Jason Hammersla, American Benefits Council senior director of communications in Washington, said the guidance makes reference to these types of plans that are being promoted to employers.

“So basically it's people that are selling these types of plans to employers suggesting that, ‘Hey, according to the MV Calculator, these meet the minimum value standard and will be cheaper,' ” he said.

Because of the way the MV Calculator was developed, it is saying that these plans meet the minimum value standard, Hammersla said.

“And the administration is saying, ‘Hey, not so fast,' ” he said.

The big question now is how can employers define substantial coverage, said Anne Lennan, president of the Society of Professional Benefit Administrators, based in Chevy Chase, Md.

Lennan said members are asking her that question and that they will have to see what the proposed regulations say.

“I'm glad that the agencies are putting out this notice and giving everyone a heads-up, because here we are in early November,” she said. “Many designers of these plans and employers have already created their plans and they're actually enrolling people for the Jan. 1 effective date.”

Rich Umbdenstock, president and chief executive officer of the American Hospital Association, said in a Nov. 4 statement, “Comprehensive inpatient hospital coverage is critical. We are pleased that the Department of Health and Human Services and the Department of the Treasury will require that large employer health plans cover hospitalizations to meet the ACA’s minimum coverage standards.”

Regulation Plan

The agencies said that after the proposed rules are issued, they will be in a position to finalize the regulations in 2015 and make them applicable upon finalization.

The pending guidance will arrive after a few steps. The HHS will propose amending 45 C.F.R. 156.145 to provide that a plan won't provide minimum value if it excludes substantial coverage for inpatient hospitalization or physician services. Treasury and the IRS will issue proposed regulations that apply the HHS regulations under Section 36B.

Under the HHS and Treasury regulations, employers won't be able to use the MV Calculator, or any actuarial certification, to show that a plan that fails to provide substantial coverage for inpatient hospitalization services or physician services provides minimum value, the guidance said.

Who Is Affected

Lennan said the guidance mainly affects small and midsize employers, largely those with low-wage workers and often whose customers are very price-sensitive.

So these employers can't pass along the costs of health-care coverage to their customers, Lennan said. Many of these employers weren't previously offering benefits, she said.

“For many of these employees, this has been a good thing, because they can go to the doctor. They can get prescriptions. They get wellness coverage,” she said. “If you're getting wellness visits and prescription drugs, it's certainly better than not getting anything.”

Determining Value

Employers with plans that don't cover inpatient hospitalization or physician services should exercise caution in relying on the MV Calculator, or any actuarial certification or valuation, to show that a nonhospital/nonphysician services plan provides minimum value for any portion of any taxable year ending on or after Jan. 1, 2015, that follows finalization of the upcoming regulations, the agencies said.

For employers that have entered into commitments to adopt these plans or already started enrollment before Nov. 4 and based their reliance on the results of the MV Calculator, the agencies expect that when the final regulations are issued, they won't be applicable for purposes of the employer shared responsibility provisions under tax code Section 4980H with respect to the plan before the end of the plan year, if that plan year begins no later than March 1, 2015, the guidance said.

The notice requires employers to correct any previous disclosures to employees that stated or implied that such plan coverage provided minimum value and would preclude them from obtaining a premium tax credit in the ACA marketplace if they are otherwise eligible, said Michelle Capezza, a member of Epstein Becker & Green PC in New York.

Notice 2014-69 is scheduled to appear in Internal Revenue Bulletin 2014-48, dated Nov. 24.

To contact the reporter responsible for this story: Sue Doyle at sdoyle@bna.com

To contact the editor responsible for this story: Phil Kushin at pkushin@bna.com