Proposed regulations would close a loophole that allowed certain employers to skirt the Affordable Care Act’s minimum value requirement.

Background

The Affordable Care Act applies to employers with 50 or more full-time equivalent employees. It requires them to offer their full-time employees coverage that:

Is affordable. The employees share of the annual premium for the lowest priced self-only plan can be no greater than 9.5 percent of annual household income.  Some employers have tried to avoid the Affordable Care Act’s (ACA) employer mandate by reducing full- time employees’ hours. But doing so can earn you a visit with a judge. The ACA requires employers with more than 50 full-time equivalent employees to provide affordable health insurance that meets certain minimum coverage requirements. Employers must provide this coverage to all full-time or full-time equivalent employees, which the law defines as working an average of 30 or more hours per week. What’s wrong with reducing employees’ hours to avoid covering them? Section 510 of ERISA, the Employee Retirement Income Security Act of 1974, makes it unlawful to “discriminate against a participants.

Meets minimum value standards. The law defines a minimum value plan as one designed to pay at least 60 percent of the total cost of medical services for a standard population.

Covers certain “essential health benefits,” or ten broad areas of treatments and services. The Affordable Care Act requires all health plans offered in the individual and small group markets, both inside and outside of the health insurance exchanges, to cover essential health benefits. It also prohibits plans from placing annual dollar limits on these essential health benefits for plan years starting January 1, 2014.

The essential health benefits provision— arguably the most costly portion of the law— does not apply to large group health plans. This creates a loophole for large employers, generally those with 101 or more employees. Although large group plans must cover preventive care services with no copayment, they do not have to cover “essential health benefits.”

Skinny Health Plans

Skinny plans designed to meet ACA requirements for large employers cover the ACA-required preventive services. To keep premiums low, however, they do not cover the “essential health benefits,” or place a very low limit on those benefits, such as $100 per hospitalization. This allows insurers to develop skinny plans that cost only a fraction of what an ACA-compliant plan would cost.

Although skinny plans meet the ACA’s affordability standard—because they don’t cover much—they do not meet the minimum value standard. A health plan meets this standard if it’s designed to pay at least 60 percent of the total cost of medical services for a standard population.

The ACA makes a premium tax credit available to individuals who do not receive qualifying employer health coverage, if their household income is between 100 percent and 400 percent of the federal poverty level. This allows them to buy coverage on the individual market. People who receive an offer of ACA-qualifying coverage from their employer cannot get the tax credit. If the ACA applies to your organization and any of your employees or their family members enroll in an individual market health plan through an exchange and receive a tax credit, you will be subject to a fine.

In early November 2014, the IRS warned that “certain group health plan benefit designs that do not provide coverage for in- patient hospitalization services are being promoted to employers.” In a notice issued by the IRS, the agency said that it believed that such plans “…do not provide the minimum value intended by the minimum value requirement.” The IRS said that it and the Department of Health and Human Services (HHS) would propose regulations to close this loophole, with the goal of finalizing and implementing them in 2015.

For a review of your organization’s health plan or to discuss your coverage options for renewals, please contact our office.

The PACE Act gives states the option of expanding their small group markets to include businesses with up to 100 employees.

• The ACA required state small group markets to be expanded to certain larger businesses.

• On Oct. 7, 2015, President Obama signed the PACE Act into law to repeal this requirement.

On Oct. 7, 2015, President Obama signed the Protecting Affordable Coverage for Employees (PACE) Act into law. The PACE Act repeals the Affordable Care Act (ACA) requirement that the small group market in every state be expanded to include businesses with 51-100 employees.

Although some sources questioned whether he might veto the law, the President signed the PACE Act into law in light of its bipartisan support in Congress.

This new law does not affect the definition of an applicable large employer (ALE) for purposes of the ACA’s employer shared responsibility rules, which applies to employers that employ, on average, 50 or more full-time employees (including full-time equivalent employees) in the prior calendar year.

Small Group Market Expansion

Most states have historically defined “small employers” as those with 50 or fewer employees for purposes of defining their small group health insurance market. Effective for 2016 plan years, the ACA expanded the definition of a “small employer” to include those that employed an average of between one and 100 employees.

• States are no longer required to expand their small group market to include businesses with up to 100 employees.

• The PACE Act does not affect the ALE definition for purposes of the ACA’s employer penalties.

The PACE Act eliminates the ACA’s new definition and, instead, gives states the option of expanding their small group markets to include businesses with up to 100 employees.

Impact on Employers

The expansion of the small group market was expected to have a significant effect on mid-size businesses. These businesses would have been required to buy coverage for employees in the small group market, which is more heavily regulated than the large group market.

This change was expected to increase premiums costs for employers and employees and reduce flexibility in plan design due to added small group market requirements.

Some states have already amended their state laws to adopt the expanded small group market definition. These states will have to take action to undo those changes.

Most states are already taking advantage of a transition rule provided by the Department of Health and Human Services (HHS). HHS has said that it will not enforce small group market regulations for mid-size businesses if their policies are renewed by Oct. 1, 2016.  We will work to continue to keep you updated on this new law.

An employer that offers minimum essential coverage to substantially all of its full-time employees may still owe penalties if the coverage it offers is inadequate because it is not “affordable” or it does not provide “minimum value.” It also may owe penalties on the employees it does not offer coverage to who receive a premium subsidy.more

Here we answer the top questions related to minimum value penalties based on the IRS’s final regulation.

Q1: What is “minimum value” coverage?
A1: Coverage is “minimum value” if the coverage is expected to pay at least 60 percent of covered claims costs. It must provide substantial coverage for inpatient hospital and physicians’ services.

Fully insured plans provided to small groups must provide coverage at bronze level, or better. Bronze level is an actuarial value of approximately 60 percent, and those plans are automatically considered to provide minimum value.

The government has provided a calculator and several safe harbor plan designs to assist large insured plans and self-funded plans with their minimum value determinations.

Q2: May an employer use wellness incentives when determining minimum value?
A2: The employer may use non-smoking incentives when determining minimum value if non-smoking incentives are used to reduce cost-sharing (deductibles, coinsurance, copays, or the out-of-pocket maximum). If non-smoking incentives are available to reduce cost-sharing, essentially the employer may assume that all employees qualify for the non-smoker incentive. All other wellness incentives must be disregarded.

Q3: May an employer use HRA contributions when determining minimum value?
A3: When determining minimum value, an employer may apply HRA contributions for the current year if those contributions may only be used by employees for cost-sharing. (Cost-sharing generally means deductibles, coinsurance, or copays.)

Q4: May an employer use HSA contributions when determining minimum value?
A4: When determining whether coverage is affordable, an employer’s contributions to an HSA may be considered as a first-dollar benefit.

Q5: What is the penalty for not offering affordable, minimum value coverage?
A5: The penalty is $250 per month ($3,000 per year, indexed) for each full-time employee who:

• Is not offered coverage that is both minimum value and affordable coverage, and

• Purchases coverage through a government Marketplace, and

• Is eligible for a premium tax credit/subsidy (so his household income must be below 400 percent of federal poverty level).

Q6: Does the employer owe a penalty if the employee declines affordable, minimum value coverage offered by the employer and buys coverage through the Marketplace instead?
A6: No. The employer simply has to offer affordable, minimum value coverage. (Specifically, the least expensive plan that provides minimum value coverage must be affordable based on the cost of self-only coverage.) If the employee chooses to obtain coverage through the Marketplace, he or she can, but the employee will not be eligible for a premium tax credit/subsidy and therefore the employer will not owe a penalty.

Q7: Does the employer owe a penalty if the employer offers minimum essential coverage that is not affordable and minimum value coverage to an employee who would be eligible for a premium tax credit/subsidy, but the employee chooses to enroll in the employer’s plan?
A7: No. If the employee chooses to obtain coverage through his or her employer instead of through the Marketplace, the employee can, but he or she will usually not be eligible for a premium tax credit/subsidy and therefore the employer will not owe a penalty.

Q8: Is it possible for an employee to qualify for a premium tax credit/subsidy even though his or her employer offers affordable coverage?
A8: Yes. If the cost of self-only coverage through the Marketplace is more than 9.5 percent (indexed to 9.56 percent in 2015, and 9.66 percent in 2016) of an employee’s actual household income, an employee could be eligible for the subsidy even though the coverage offered by his or her employer is affordable under one of the three safe harbors. This will be a fairly unusual occurrence, but could happen because certain deductions are allowed when determining household income.

Q9: Must all plan options provide affordable, minimum value coverage?
A9: No. Only the lowest cost option that provides minimum value coverage needs to be affordable to avoid the penalty. An employer is free to offer other options that do not meet affordability.

Q10: Are there special rules for multi-employer plans?
A10: Yes. If the employer is required to make a contribution to a multi-employer plan with respect to some or all of its employees under a collective bargaining agreement or related participation agreement and the multi-employer plan offers affordable, minimum value coverage to eligible employees, the employer will be considered to have offered affordable, minimum value coverage. In addition to the three affordability safe harbors, coverage under a multi-employer plan is considered affordable if the employee’s contribution toward self-only coverage does not exceed 9.5 percent (indexed to 9.56 percent in 2015, and 9.66 percent in 2016) of the wages reported to the multi-employer plan, based on either actual wages or an hourly wage rate under the bargaining agreement.

Therefore, determining how many employees you have under ACA is critical to avoiding penalties. Please contact our office with any particular questions or concerns.

On February 29, the Department of Health and Human Services (HHS) issued final regulations that address a wide range of benefit and payment parameters under the Affordable Care Act (ACA), effective for plan years beginning on or after January 1, 2017. The final regulations include some changes from the proposed rules that were issued in November 2015, and delayed a few provisions contained in the proposed rules until 2018.

On the same date:

• The Centers for Medicare and Medicaid Services (CMS) issued an FAQ that clarified the suspension of the 2017 Health Insurance Industry Fee. The moratorium will apply to the Health Insurance Industry Fee that would have been due in the 2017 calendar year based on 2016 data.

• CMS also issued a bulletin announcing that non-grandfathered individual policies and small group plans may extend their exemption from certain ACA provisions under the previously announced transitional relief.  If the applicable state permits, an extension may be granted through December 31, 2017. As of January 1, 2018, these policies and plans will need to comply with all ACA requirements. Earlier guidance had required these policies and plans to end by October 1, 2017.

Here is an overview of some key regulations in the final 2017 Benefit Payment and Parameters.

2017 Out-of-Pocket Maximums

The 2017 annual out-of-pocket maximums will be $7,150 for individual coverage and $14,300 for family coverage.

Marketplace Enrollment Period

The 2017 and 2018 open enrollment periods will follow the same timing as 2016 enrollment: November 1 through January 31 of the following year.

For 2019 and future years, the annual enrollment period will be November 1 through December 15.

Marketplace Automatic Re-enrollment

If the plan in which an individual is currently enrolled is no longer available, Marketplaces may enroll consumers in a plan offered by another insurer if the current insurer does not have a plan available for re-enrollment through the Marketplace.

2017 User Fee

The fee insurers pay to sell individual policies through the Federally Facilitated Marketplace (FFM) will remain at 3.5% of the monthly premium. Insurers transitioning to selling policies through State-Based Marketplaces on the Federal Platform (SBM-FPs) will pay a reduced user fee of 1.5% of premium for 2017 and 3% of premium in future years.

Network Adequacy Standards

The final rules have adopted several changes related to network adequacy requirements for plans sold on the Marketplace.

• Transparency of network size – Beginning in 2017, HealthCare.gov plans to include a rating of each plan’s relative network size compared to other plans available in the same geographic area.

• Coverage when a provider leaves the network – New continuity-of-care requirements will apply in the Federal Marketplace. Insurers must provide 30 days’ advance notice to patients receiving treatment from a provider who is leaving the network. Insurers will have to continue in-network coverage for individuals receiving active treatment, until the treatment is complete or for 90 days, whichever occurs first.

• Treating certain out-of-network expenses as in-network – Beginning in 2018, cost-sharing amounts for certain services performed by out-of-network ancillary providers (e.g. anesthesiologists) at in-network facilities must be counted toward the in-network, annual out-of-pocket maximum. Only when the insurer provides written notice to the patient – at least 48 hours prior to the time of service – may the out-of-network service be billed at an additional cost. This is intended to help limit “surprise bills” for consumers.

Standardized Plan Options in the Individual Marketplace

The standardized plan system will remain in place to make it easier for consumers to compare costs for similar plans offered by different insurers in the Federal Marketplace. The current proposal includes four silver, one bronze and one gold plan. The standardized plans have:

• Standard deductible amounts

• Four-tier drug formularies

• Only one in-network provider tier

• Some services, such as office visits, urgent care and generic drugs, not subject to the deductible

• A preference for copayments over coinsurance

Insurers can choose to offer standardized plans, non-standardized plans or both. Standardized plans will be displayed on HealthCare.gov in a manner intended to make them easy for consumers to find.

New Model for State/Federal Marketplace Partnerships

State Marketplaces that use HealthCare.gov’s technology for eligibility and enrollment will be known as State-Based Marketplaces on the Federal Platform (SBM-FPs). States will retain primary responsibility for plan management and consumer assistance, and for ensuring all Marketplace requirements are met. States will use the Federal platform for eligibility determinations and enrollment processing. This model is intended to make the transition easier should additional states decide to move to this arrangement in the future.

Navigator Responsibilities Beyond Enrollment

Beginning in 2018, Navigators will be required to provide post-enrollment assistance for functions such as Marketplace eligibility appeals, application for exemptions through the Marketplace, and helping consumers understand how to use their benefits. Navigators will also be required to assist vulnerable and underserved populations, as identified by the state-based exchange in their area.

Marketplace Enrollment Directly on Broker and Insurer Websites Delayed until 2018

Beginning in 2018, individuals may enroll in Marketplace coverage directly through an insurer or broker’s website. Further guidance and requirements will be issued. Until then, the current Marketplace enrollment process will continue.

Changes to Federally Facilitated SHOP Plans

As of January 1, 2017, a new employee choice option will be offered on the Federally facilitated Small Employer Health Options Program (SHOP). Currently, employers can offer employees a single plan or a choice of plans within a metal level. Under the new “vertical choice” model, employers will be able to offer employees a choice of all plans across all available levels of coverage from a single insurer. States can choose to opt out of offering vertical choice.

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