Determining whether group health coverage provides “minimum value” is key to avoiding penalties under health reform’s premium tax credit program, so employers will likely welcome new proposed rules that further explain MV criteria. The proposal, to be published May 3 by IRS, would complement language in final rules issued in February on how reform’s MV and affordability provisions apply to health savings accounts, health reimbursement accounts and wellness programs.
Beginning in 2014, individuals who meet certain income thresholds and purchase coverage under a qualified health plan through a health insurance exchange may receive a premium tax credit. They are not eligible for “affordable coverage” under an eligible employer-sponsored plan that provides “minimum value.” Eligible-employer coverage is affordable only if an employee’s required contribution for self-only coverage does not exceed 9.5 percent of household income. A plan fails to provide MV if its share of the total allowed costs of plan benefits is less than 60 percent of the costs. An applicable large employer may be liable for penalties if a full-time employee receives a premium tax credit.
In February 2013, the U.S. Department of Health and Human Services published final regulations that defined total allowed costs and described several options for determining MV. The rules requested comments on issues to be addressed in further guidance. Those comments are reflected in the new proposed rules.
Some commenters to the HHS rules questioned the extent to which HSA and HRA contributions should count toward the plan’s share of costs in calculating MV and/or determining the affordability of eligible employer-sponsored coverage. The IRS proposal would provide that:
- All amounts contributed by an employer for the current plan year to an HSA would be considered in determining the plan’s share of costs and would be treated as amounts available for first dollar coverage.
- Amounts newly made available under an HRA integrated with an eligible employer plan for the current plan year: (a) count for MV purposes in the same manner if the amounts may be used only for cost-sharing and not used to pay premiums; and (b) are taken into account only in determining affordability if the employee may use the amounts only for premiums or may choose to use the amounts for either premiums or cost-sharing. This prevents double counting the HRA amounts.
Opinions from commenters also differed on how nondiscriminatory wellness program incentives that may affect an employee’s cost sharing should be taken into account for MV and affordability purposes. To clarify matters, the IRS proposal would provide that:
- A plan’s share of costs for MV purposes would be determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program. However, if those programs are designed to prevent or reduce tobacco use, MV may be calculated assuming that every eligible individual satisfies the program terms relating to tobacco use.
- The affordability of an employer-sponsored plan would be determined by assuming that each employee fails to satisfy the requirements of a wellness program (excluding a nondiscriminatory wellness program related to tobacco use).
The proposed rules also would give employers with wellness programs transition relief from penalties that typically will be assessed when an employee receives a tax credit for coverage deemed not to be affordable or to satisfy MV. This relief would apply under certain conditions and would only apply for plan years beginning before Jan. 1, 2015.
More details on this new rule and other health reform issues can be found at http://hrcomplianceexpert.com.