The U.S. Department of the Treasury has published proposed regulations that provide guidance on how an employer may determine whether its group health plan provides “minimum value.” This determination is important because a large employer (generally speaking, with 50 or more full-time employees) faces a $3,000 annual penalty (under Code section 4980H(b)) with respect to each full-time employee for whom it fails to offer affordable group coverage providing minimum value, and such employee receives the new federal premium tax credit for the purchase of individual insurance through an Affordable Insurance Exchange.
If an individual is eligible for affordable coverage under an eligible employer-sponsored health coverage that provides minimum value, then he or she cannot, regardless of income, receive a premium tax credit toward individual coverage through an Exchange. Hence, if the employer can determine that its plan provides minimum value (and is affordable), then it can be assured that it will not be exposed to the Code section 4980H(b) penalty.
Generally speaking, an employer-sponsored health plan fails to provide minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of the costs. The proposed Treasury regulations indicate that minimum value is determined based on anticipated spending for a standard population related to essential health benefits (EHB), taking into account the employer’s choices regarding cost-sharing required of participants (deductibles, co-pays, co-insurance, etc.).To provide minimum value, a plan must have a minimum value percentage (MV Percentage) of at least 60 percent. The MV Percentage is calculated by dividing the plan’s anticipated covered EHB medical spending for a standard population by the total anticipated allowed charges for coverage of EHB provided to that population.
There are several available methods for an employer-sponsored health plan to determine whether it provides minimum value:
- Use the Minimum Value Calculator made available by HHS and IRS, which can be found here.
- Use one of several design-based safe harbors.
- If the plan has nonstandard features that are not compatible with the Minimum Value Calculator, obtain an actuarial certification of minimum value.
If the employer’s plan is offered together with a health savings account (HSA), the employer can include as part of the plan’s MV Percentage the value of the employer’s contributions (if any) to the HSA for the then-current plan year. Similarly, if the employer makes contributions to a health reimbursement account that is integrated with its health plan, the employer generally can include such contributions for the current year as part of the plan’s MV Percentage.
A plan’s share of costs for minimum value purposes is determined without taking into account reduced cost-sharing that is potentially available under a nondiscriminatory wellness program, except for wellness programs addressing tobacco use. For such wellness programs, minimum value may be calculated by assuming that an eligible individual satisfies and earns the cost-sharing reduction awarded for prevention/reduction of tobacco use.
As the federal health care reform effort gained steam, Ballard Spahr attorneys established the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. They also have launched the Health Care Reform Dashboard, an online resource center for news and analysis on developments under the Affordable Care Act.
If you have questions about the minimum value requirements, contact Brian M. Pinheiro at 215.864.8511 or firstname.lastname@example.org, or Kurt R. Anderson at 215.864.8432 or email@example.com.