This article was originally featured in our ADP Eye on Washington update.
The Internal Revenue Service (IRS) in the May 3, 2013 Federal Register published proposed rules, which address the determination of minimum value of eligible employer-sponsored plans for purposes of the premium tax credit and Employer Shared Responsibility provisions under the Affordable Care Act (ACA).
Under the ACA, an employer with 50 or more full-time employees and full-time equivalent employees may be subject to a penalty if any full-time employee receives a premium tax credit to purchase health insurance through a healthcare Exchange (aka “Marketplace”). However, an individual will generally not be eligible to receive a premium tax credit if he or she is eligible to receive coverage under an employer-sponsored plan that is both affordable and provides minimum value. An employer-sponsored plan is considered to provide minimum value if the plan’s share of the total allowed costs of benefits is 60 percent or more of such costs. A plan is considered affordable if the cost of self-only coverage under the plan to the employee is 9.5 percent or less of the employee’s household income.
The proposed IRS rules describe how minimum value and affordability are determined for employer-sponsored plans, including the treatment of health savings account (HSA) and health reimbursement arrangement (HRA) contributions, as well as incentives under a wellness program. In addition, the proposed rules provide for designed-based safe harbors for minimum value determinations.
Employer HSA and HRA Contributions:
Under proposed IRS rules, all amounts contributed by an employer to an HSA for the current year would be taken into account when determining the minimum value percentage.
Employer contributions to an “integrated” HRA for the current year would be treated as follows:
• Amounts in an HRA that may be used only for cost sharing (but not for paying premiums) would be taken into account in determining the minimum value percentage.
• Amounts in an HRA that may be used for paying premiums would be taken into account in determining a plan’s affordability, but not for determining its minimum value percentage.
• An HRA is considered “integrated” if the employer offers primary group health insurance coverage that alone satisfies Section 2711 of the Public Health Services (PHS) Act and the HRA is only made available to those employees who are enrolled in the primary group health plan coverage. Section 2711 of the PHS Act, as added by the ACA, generally prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits.
Under the proposed rules, nondiscriminatory wellness program incentives, offered by an eligible employer-sponsored plan, that affect deductibles, copayments, or other cost sharing are treated as earned in determining the plan’s minimum value percentage ONLY to the extent the incentives relate to prevention or reduction in tobacco use. Incentives provided under wellness programs for purposes other than tobacco prevention or reduction would not be taken into account for purposes of determining the minimum value percentage or the plan’s affordability.
Transition Relief: The proposed IRS rules provide that – for plan years commencing prior to January 1, 2015 – an employer will not be subject to a Shared Responsibility penalty under Code Section 4980H(b) for not providing affordable or minimum value coverage with respect to an employee who received a premium tax credit if 1) the coverage would have been affordable and 2) it provides minimum value taking into account wellness incentives, including those not addressing tobacco use. It is important to note that in order to qualify for the transition relief, the amount of the incentive and the terms of the wellness program incentive must have been in place as of May 3, 2013 and only applies to categories of employees (whenever hired) who were eligible for the incentive as of that date.
COBRA and Retiree Coverage:
The proposed rules provide that a former employee who may enroll in continuation coverage required under federal law (or state law that provides comparable continuation coverage) is eligible for minimum essential coverage only for months that the individual is enrolled in the coverage.
Minimum Value Determinations:
Adhering to previous guidance, the proposed IRS rules stipulate that minimum value determinations may be performed utilizing the “MV Calculator” [mv-calculator-final-2-20-2013] made available by the IRS and the Department of Health and Human Services. “Taxpayers must use the MV Calculator to measure standard plan features (unless a safe harbor applies), but the percentage may be adjusted based on an actuarial analysis of plan features that are outside the parameters of the calculator.”
Proposed Safe Harbor Plan Designs:
Although the proposed rules did not provide safe harbor plan designs, the preamble to the proposed rules state “plan designs meeting the following specifications are proposed as safe harbors for determining MV if the plans cover all of the benefits included in the MV Calculator”:
(1) A plan with a $3,500 integrated medical and drug deductible, 80 percent plan cost sharing, and a $6,000 maximum out-of-pocket limit for employee cost sharing.
(2) A plan with a $4,500 integrated medical and drug deductible, 70 percent plan cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA.
(3) A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent plan medical expense cost sharing, 75 percent plan drug cost sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10/$20/$50 for the first, second and third drug tiers, with 75 percent coinsurance for specialty drugs.
For a copy of the May 3, 2013 Federal Register containing the proposed rules, please click on the link provided below. http://www.gpo.gov/fdsys/pkg/FR-2013-05-03/pdf/2013-10463.pdf
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