The Patient Protection and Affordable Care Act ("PPACA") requires "large employers" to provide affordable health coverage of a minimum value to full-time employees and their dependents starting in 2014. A large employer failing to do so may be subject to penalties.
Coverage is considered affordable to an employee if the employee portion of the self-only premium for the employer's lowest-cost coverage does not exceed 9.5% of the employee's household income, but only if the lowest-cost coverage provides a minimum value.
Coverage provides minimum value if the plan's share of total costs under the plan is at least 60%. Calculating minimum value is far more challenging than calculating affordability.
The Internal Revenue Service ("IRS") first outlined, in IRS Notice 2012-31, three methods that an employer could use to determine whether its benefit plan covers at least 60% of costs. These methods were subsequently incorporated in large part into proposed regulations published by the Department of Health and Human Services ("DHHS") on November 26, 2012.
The first method is the use of a minimum value calculator that will be provided by the IRS and DHHS. An employer can enter information about the plan’s benefits, coverage of services, and cost-sharing features (such as co-payments, co-insurance, and deductibles) into the calculator to determine whether the plan provides the minimum required value. The calculator has not yet been made available.
The second method is use of IRS or DHHS safe harbor checklists. An employer can compare the terms of its plan to the terms contained in a safe harbor checklist to determine whether the employer's plan provides minimum value. If the terms of the employer's plan are consistent with or more generous than the terms identified in the safe harbor checklist, the employer's plan will be deemed to provide minimum value. The safe harbor checklists are anticipated to be released when the minimum value calculator is released.
If the first two methods will not work for an employer because the employer's plan contains non-standard features that are not recognized by the minimum value calculator or safe harbor checklists, then the employer may seek actuarial certification as to whether the plan provides minimum value.
Regardless of the method chosen, it appears that employer contributions to a health savings account and amounts newly made available under a health reimbursement account will be taken into account when determining whether a plan covers 60% of costs.
We anticipate additional information regarding the calculation of a plan's affordability and minimum value will be issued in coming months.
If you have questions regarding whether you are a large employer or whether your plan is affordable or provides a minimum value, please contact any member of Foster Swift's health care practice group.