The IRS is asking the public for input into a rule that will determine when an employer-sponsored health plan is offering “substantial coverage” of inpatient hospital and physician services. This will be part of new rules defining minimum value in employer-sponsored health coverage.
Employer-sponsored coverage must meet two tests to comply with the employer mandate: the coverage must be “affordable” and provide “minimum value.” In order to provide “minimum value,” employer-sponsored plans have to: (1) pay at least 60 percent of the total allowed costs of benefits; and (2) provide “substantial” coverage of inpatient hospital services and physician services.
A notice of proposed rulemaking published Sept. 1 (80 Fed. Reg. 52678) indicates that U.S. Departments of Health and Human Services and Treasury will define “substantial coverage” for hospitalization and physician services.
Background
The proposed rule is an effort to reconcile guidance that has accumulated over time. Notably, In November 2014, with Notice 2014-69, the government added the requirement that substantial hospitalization and physician coverage be included in employer plans for them to be considered as having “minimum value.”
Allowing plans that fail to cover physician and hospital services to pass as minimum essential coverage could harm participants by preventing some of them from purchasing subsidized coverage on exchanges, the NPR says. Sicker participants would flee such plans and pile into exchanges, where plans must cover the full panel of essential health benefits. In essence, employers would be skirting their responsibility under the employer mandate unless they cover enough services, the NPR states.
Previous guidance on minimum value was encased in a tax-credit rule that was proposed on May 3, 2013 (78 Fed. Reg. 25909). Accordingly, the IRS is withdrawing portions of the 2013 rule that discussed minimum value and says it will replace them with new rules that incorporate much of the HHS language.
This is important to employers because an individual may not get a subsidy to buy exchange coverage if he or she has received an offer of minimum essential coverage from his or her employer. In turn, employers cannot face health care reform penalties if none of their workers use subsidies to buy exchange coverage. For coverage to be considered “minimum essential,” it must be: (1) affordable; and (2) convey minimum value.
Effective Dates
The rules on affordability and employer contribution of other aspects of the MEC requirements apply to plans with plan years beginning on or after Nov. 3, 2014.
The provisions relating to hospitalization and physician services are subject to transitional relief: they apply to plans whose plan year began on or later than March 1, 2015, provided that the employer had entered into a binding written commitment to adopt the noncompliant plan terms, or had begun enrolling employees in the plan with noncompliant plan terms, before Nov. 4, 2014.
Comments on the “substantial coverage” topic will be accepted until Nov. 1, 2015, and the agency said it plans on holding public hearings.