Health care reform
Although many employers are focused heavily on reducing the cost of health plans, health care reform also requires that those plans offer a “minimum value” of coverage. Now, the Internal Revenue Service (IRS) has created guidelines to help employers calculate that value.
This is an important consideration for employers with 50 or more full-time employees or equivalents. They may face penalties if their plan does not offer all employees “affordable” coverage with an actuarial value of 60%, meaning the employee won’t have to pay more than 40% of the costs of benefits under the plan. (For details on the penalties, see page 18 of the Price of Reform thought leadership report on this website.) This cost calculation focuses on four “core” benefits:
Employees who are not offered access to a plan that meets this minimum value threshold and who have a household income of less than 400% of the federal poverty level* are eligible for premium subsidies, which are delivered in the form of tax credits for coverage through the Health Insurance Exchanges. (Under a separate provision, employees in this income level may also be eligible for premium subsidies if the employer’s plan is not affordable according to government standards.)
In Notice 2012-31, released on April 26, 2012, the IRS has proposed three ways for employers to calculate whether their group health plans meets the standard for minimum value in 2014. Their options are:
1. A Calculator that will be made available by the Department of Health and Human Services (HHS) and the Department of the Treasury. To use the calculator, employers input information about their plan benefits and the percent of cost sharing with employees.
The calculator uses claims data from self-funded and large group fully-insured plans to determine whether an employer’s plan provides the minimum value. The calculator alone cannot be used for plans that include what the IRS calls “non-standard features,” such as limits on physician visits. These can complicate the calculation of the actuarial value.
To read more about these calculations, read Unum’s article “Actuarial value and cost-sharing update,” on this website.
2. An Actuarial Certification. Employers sponsoring plans with non-standard features can use a combination of the calculator and an actuarial certification. The employer would use the calculator as explained above, and then have an actuary assess the impact of the non-standard features and adjust the plan’s actuarial value accordingly.
3. A Safe Harbor Checklist. Rather than use the calculation or actuarial certification, employers can choose alternately to use a “safe harbor” checklist. This lists the four core benefits and the minimum cost-sharing levels the employer can use to reach a 60% actuarial value. If the cost-sharing level for any of these core benefits exceeds the allowable amount on the safe harbor checklist, the employer’s plan would not reach the required “minimum value.”
Employers cannot choose this option if their plans include non-standard features or do not cover all of the core benefits.
The IRS notice also seeks comments on this proposal, which must be submitted by June 11, 2012. One specific request: the government is looking for ideas on how the calculator could be amended to include non-standard benefits.
The IRS also issued Notice 2012-32 and Notice 2012-33, with related information on guidelines for reporting minimum value calculations to the government. See the article “Reporting requirements for essential coverage” on this website.
Impact on employers — Employers will have to pay more attention to plan design than ever before, so their coverage meets government standards for minimum value while still affordability requirements.
If employers decide to forgo offering coverage altogether, they could be assessed a penalty as well. For more information on these penalties, see “The price of reform: Funding America’s health care reform package” on this website.
Impact on brokers — Employers may rely more heavily on their brokers to help them craft strategies that keep their health plans rich enough to meet the minimum value, yet affordable under the law.
* $89,400 for a family of four in 2011.