Minimum Essential Coverage
Determining Minimum Value
The ACA states that a plan fails to provide minimum value if the plan’s share of total allowed costs of benefits provided under the plan is less than 60 percent of those costs. Minimum value is calculated by dividing the cost of essential health benefits (EHBs) the plan would pay for a standard population by the total cost of EHBs for the standard population (including amounts the plan pays and amounts the employee pays through cost-sharing) and then converting the result to a percentage.
On February 25, 2013, HHS issued a final rule on EHBs. The rule finalizes the approaches for determining minimum value, as described by the IRS in Notice 2012-31. On May 3, 2013, the IRS released a proposed rule to provide additional guidance on ACA’s minimum value and affordability requirements.
Four Approaches
Approach One: CalculatorThe minimum value calculator, or MV Calculator, permits 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. In connection with the final rule, HHS released its MV Calculator, and an MV Calculator Methodology to help employers use the calculator.
If a plan uses the MV Calculator and offers an EHB outside of the parameters of the MV Calculator, the plan may ask an actuary to determine the value of the benefit and add it to the result derived from the MV Calculator to reflect that value.
Approach Two: Safe Harbor Checklists
HHS and the IRS will provide design-based safe harbors in the form of checklists that employers can use to compare to their plans’ coverage. If the employer-sponsored plan’s terms are consistent with or more generous than any one of the safe harbor checklists, the plan will be treated as providing minimum value. This method will not involve calculations and can be completed without an actuary.
Plan designs meeting the following specifications are proposed as safe harbors for determining minimum value if the plan covers all of the benefits included in the MV Calculator:
- A plan with a $3,500 integrated medical and drug deductible, 80 percent plan cost sharing and a $6,000 maximum out-of-pocket limit for employee cost-sharing;
- A plan with a $4,500 integrated medical and drug deductible, 70 percent plan cost sharing, a $6,400 maximum out-of-pocket limit and a $500 employer contribution to a health savings account (HSA); and
- A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent plan medical expense cost-sharing, 75 percent plan drug cost-sharing, a $6,400 maximum out-of-pocket limit and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75 percent coinsurance for specialty drugs.
Approach Three: Actuarial Certification
An actuarial certification approach will be available for plans with nonstandard features that preclude the use of the MV Calculator or checklist methods. Nonstandard features would include quantitative limits (for example, limits on covered hospital days or physician visits) on any of the four core categories of benefits and services. Under this approach, plans will be able to generate an initial value using a calculator and then engage a certified actuary to make appropriate adjustments to take into consideration the nonstandard features.
Approach Four: Metal Level
Any plan in the small group market that meets any of the “metal levels” of coverage (that is, bronze, silver, gold or platinum) provides minimum value.
Health Benefits Measured
In determining the share of benefit costs paid by a plan, the proposed rule does not require employer-sponsored large group plans to cover every EHB category or conform their plans to an EHB benchmark that applies to qualified health plans (QHPs). Employer-sponsored group health plans are not required to offer EHBs unless they are health plans offered in the small group market. Minimum value is measured based on the provision of EHBs to a standard population and plans may account for any benefits covered by the employer that also are covered in any one of the EHB benchmark plans.
The proposed rule provides that minimum value is based on the anticipated spending for a standard population. The plan’s anticipated spending for benefits provided under any particular EHB-benchmark plan for any state counts towards minimum value.
HSA and HRA Contributions
The proposed rule provides that all amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan’s share of costs for purposes of minimum value and are treated as amounts available for first dollar coverage.
Amounts newly made available for the current plan year under a health reimbursement arrangement (HRA) that is integrated with an eligible employer-sponsored plan count for purposes of minimum value, as long as the amounts may be used only for cost-sharing and may not be used to pay insurance premiums.
Rules for Wellness Program Cost-sharing Reductions
In addition, the proposed rule addresses how nondiscriminatory wellness program incentives that may affect an employee’s cost sharing should be taken into account for purposes of the minimum value calculation. The proposed rule provides that a plan’s share of costs for minimum value purposes is determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program.
However, for nondiscriminatory wellness programs designed to prevent or reduce tobacco use, minimum value may be calculated assuming that every eligible individual satisfies the terms of the
program relating to prevention or reduction of tobacco use. This exception is consistent with other ACA provisions (such as the ability to charge higher premiums based on tobacco use) reflecting a policy about individual responsibility regarding tobacco use.
Transition relief is provided in the proposed rule for plan years beginning before January 1, 2015. Under this relief, if an employee receives a premium tax credit because an employer-sponsored health plan is unaffordable or does not provide minimum value, but the employer coverage would have been affordable or provided minimum value had the employee satisfied the requirements of a nondiscriminatory wellness program (as in effect on May 3, 2013), the employer will not be subject to the employer penalty.
Standard Population
The proposed rule provides that the standard population used to determine minimum value reflects the population covered by self-insured group health plans. HHS has developed the minimum value standard population and described it through summary statistics (for example, continuance tables). Minimum value continuance tables and an explanation of the MV Calculator methodology and the health claims data HHS has used to develop the continuance tables are available on the Center for Consumer Information & Insurance
Reporting Minimum Essential Coverage (Delayed Until 2015)
Effective for 2014, ACA requires every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and other entity that provides minimum essential coverage to file an annual return with the IRS reporting information for each individual who is provided with this coverage. The entity filing the report must also provide a written statement to each individual listed on the return that shows the information reported to the IRS. This reporting will allow the IRS to implement ACA’s individual mandate.
IRS Notice 2012-32 invites comments on this reporting requirement, including how to determine when an individual’s coverage begins and ends and how to coordinate and minimize duplication of reporting under this requirement and similar reporting requirements. The IRS anticipates that health insurance issuers, and not employers, will be responsible for reporting minimum essential coverage under insured group health plans.
Reporting Large Employer Coverage (Delayed Until 2015)
Effective for 2014, large employers subject to ACA’s “pay or play” requirements must file a return with the IRS that reports the terms and conditions of the health care coverage provided to the employer’s full-time employees for the calendar year. Related statements must also be provided to employees. The IRS will use this information to verify employer-sponsored coverage and administer ACA’s penalty provisions for large employers. IRS Notice 2012-33 invites comments on this employer reporting requirement, including how to coordinate this reporting requirement with similar ones to minimize duplication.
