Employee Benefits-IRS Discusses Issues Arising When A Group Health Plan Fails To Cover In-Patient Hospitalization Services

In IRS Notice 2014-69, the Internal Revenue Service (the “IRS”) raises the issues an employer faces when its group health plan fails to cover in-patient hospitalization services. Here is a summary of what the IRS says.

Offering Minimum Value. The IRS, as well as the Department of Health and Human Services (the “HHS”) (together the “Departments”), have become aware that certain group health plan benefit designs, which do not provide coverage for in-patient hospitalization services, are being promoted to employers. These promotors contend that such plans provide “minimum value” or “MV” for purposes of the Affordable Care Act (the “ACA”), when tested using the on-line MV Calculator referred to in final HHS regulations and proposed Treasury regulations.

Consequences Of Offering MV. An employee or family member who is offered coverage under an eligible employer-sponsored plan that provides affordable MV coverage for the employee may not receive premium tax credit assistance under Code section 36B for coverage in a qualified health plan offered under an ACA Insurance Exchange. An applicable large employer (as defined in Code section 4980H(c)(2)) may be liable for a section 4980H assessable payment if one or more of its full-time employees receives a premium tax credit.

Intention To Publish Proposed Regulations. The Departments believe that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both) (“Non-Hospital/Non-Physician Services Plans”) do not provide the minimum value intended by the ACA, and will shortly propose regulations to this effect which can be finalized in 2015. Under the final regulations, an employer will not be entitled to rely solely on the MV Calculator to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV for any portion of a taxable year ending on or after January 1, 2015. In short, an employer should not adopt a Non-Hospital/Non-Physician Services Plan for any plan year starting in or after 2015. As a transition rule, solely in the case of an employer that has entered into a binding written commitment to adopt, or has begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan prior to November 4, 2014, based on the employer’s reliance on the results of use of the MV Calculator, the final regulations will not upset this reliance before the end of the plan year that begins by no later than March 1, 2015.

Effect On Employees. Pending issuance of final regulations, an employee will not be required to treat a Non-Hospital/Non-Physician Services Plan as providing MV for purposes of his or her eligibility for a premium tax credit under Code section 36B. An employer that offers a Non-Hospital/Non-Physician Services Plan (including one subject to the transition rule) to an employee: (1) must not state or imply any disclosure that the offer of coverage under the Non-Hospital/Not-Physician Services Plan precludes an employee from obtaining a premium tax credit, if otherwise eligible, and (2) must timely correct any prior disclosures that stated or implied that the offer of the Non-Hospital/Non-Physician Services Plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.