Under the Affordable Care Act, beginning in 2014, lower-income individuals who purchase coverage under a qualified health plan through an Exchange may be eligible for a premium tax credit under Code Sec. 36B. To receive the tax credit, however, the individual must be ineligible for other minimum essential coverage, including coverage under an employer-sponsored plan that is affordable and provides “minimum value.” Conversely, most large employers that don’t provide plans offering “minimum value” (thereby sending their employees to an Exchange to seek coverage) may be liable for a penalty payment under Code Sec. 4980H.
So, for the IRS to determine which individuals are eligible for the tax credit or not, and which employers will get socked with the penalty, it must get a handle on what it means under the ACA to provide minimum value.
The statute provides some help. Under Code Sec. 36B(c)(2)(C), an employer-provided plan fails to provide minimum value if it covers less than 60 percent of the total allowed costs of benefits provided under the plan. To flesh out that definition, the IRS has offered, in Notice 2012-31, three alternative draft approaches that could be used to determine whether an employer-sponsored plan provides minimum value. The idea is that employers could then choose one of the three approaches to measure their plan’s minimum value.
Interested employers should review the three alternatives and offer any comments by June 11, 2012. Comments may be sent to Notice.Comments@irscounsel.treas.gov or via mail. The IRS will then proceed to issue a proposed rule on the topic.
So, what are the three alternatives? Well, as you might expect, the word “actuarial” is involved.
Approach 1: Calculators. An actuarial value calculator (AV calculator) or a minimum value calculator (MV calculator) would be made available by the Department of Health and Human Services (HHS) and the Treasury Department. In either case, the calculator would permit an employer-sponsored plan to enter information about the plan's benefits, coverage of services, and cost-sharing terms to determine whether the plan provides minimum value. The data underlying the MV calculator (which would be designed for use by employer-sponsored self-insured plans and insured large group plans) are expected to be claims data reflecting typical self-insured employer plans.
Approach 2: Checklists. An array of design-based safe harbors would be offered in the form of checklists that would provide a simple, straightforward way to ascertain that employer-sponsored plans provide minimum value without the need to perform any calculations or obtain the assistance of an actuary.
Approach 3: Actuarial certification. Plans with nonstandard features that preclude the use of the calculators without adjustments could obtain an appropriate certification by a certified actuary, in accordance with prescribed continuance tables, recognized actuarial standards, and other conditions that may be prescribed in administrative guidance, that the plan provides minimum value.
For a comprehensive analysis of the ACA, and additional information on health reform and other developments in employee benefits, just click here.
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