In April 2012, the Internal Revenue Service issued three new guidance documents related to requirements the Patient Protection and Affordable Care Act (PPACA) imposes on employer-provided health plans. In addition, the Department of Health and Human Services (HHS) issued a bulletin regarding verification of access to employer-sponsored coverage.
IRS Notice 2012-31
The first guidance document, Notice 2012-31, suggests various possible ways for determining whether the coverage offered through an employer-sponsored health plan constitutes “minimal value” under the health reform law. Beginning in 2014, the PPACA will permit certain eligible individuals who purchase health insurance through insurance exchanges to receive a premium tax credit unless they are eligible for other minimum essential coverage, including affordable employer-sponsored coverage that provides minimum value. A plan lacks minimum value if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.” A large employer (with 50 or more full-time employees or equivalents) will be subject to a penalty if any full-time employee receives a tax credit because the employer-sponsored plan does not provide minimum value.
Notice 2012-31 sets forth three possible approaches for determining minimum value, and requests input on these methods. Under anticipated future guidance, an employer-sponsored plan would be able to use one of the following alternative approaches to ascertain whether the plan provides minimum value. These three assessment possibilities are:
• The actuarial value calculator (AV calculator) or a minimum value calculator (MV calculator) to be made available by HHS and the Treasury Department. The calculator would permit 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. The data underlying the MV calculator (which would be designed for use by employer-sponsored self-insured plans and insured large group plans) are expected to be claims data reflecting typical self-insured employer plans.
• An array of design-based safe harbors in the form of checklists that would provide a simple, straightforward way to ascertain that employer-sponsored plans provide minimum value without the need to perform any calculations or obtain the assistance of an actuary.
• For plans with nonstandard features that preclude the use of the AV calculator or the MV calculator without adjustments, an appropriate certification by a certified actuary, in accordance with prescribed continuance tables, recognized actuarial standards and other conditions that may be prescribed in administrative guidance, that the plan provides minimum value.
Notice 2012-31 discusses each method in detail, and requests comments “on issues plan sponsors, issuers, and employers may face in evaluating plan designs that will cover part or all of 2014, including suggestions for transitional relief for plan years that start before and end in 2014.”
The notice also confirms that employer-sponsored self-insured and insured large group plans are not required to conform their plans to any of the essential health benefit (EHB) benchmarks that HHS intends to apply to Qualified Health Plans (QHPs) offered through the exchanges.
HHS issued an actuarial value bulletin explaining that the actuarial value of QHPs offered through an exchange (and of nongrandfathered plans in the individual and small group insurance markets) is determined by computing the ratio of (1) the total expected payments by the plan, computed in accordance with the plan’s cost-sharing rules (deductibles, co-insurance, co-payments, out-of-pocket limits), toward the costs a standard population is expected to incur at standard pricing for EHBs; over (2) the total costs a standard population is expected to incur at standard pricing for the EHBs. The notice states that actuarial value with respect to self-insured plans and insured large group plans will be determined in the same manner, but with appropriate modification.
In addition, Notice 2012-31 seeks comments on a series of questions, including how the actuarial value initially generated by the AV calculator or the MV calculator could be adjusted to take into consideration benefits provided under the plan other than the four core categories of benefits (physician and mid-level practitioner care; hospital and emergency room services; pharmacy benefits; and laboratory and imaging services).
IRS Notice 2012-32
The second guidance document (Notice 2012-32) requests comments on the related reporting requirements for health insurance issuers, employers that sponsor self-insured plans, and other entities that provide minimal essential coverage to an individual. As discussed in the notice, Section 6055 of the Internal Revenue Code (IRC)—which was added under the PPACA—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 annual returns reporting information for each individual for whom minimum essential coverage is provided. The reporting requirements apply to health care coverage on or after Jan.1, 2014. If health insurance coverage is provided by a health insurance issuer and consists of coverage provided through a group health plan of an employer, it is anticipated that the regulations would make the health insurance issuer responsible for the reporting.
Effective for years beginning after 2013, IRC Section 6056 directs every applicable large employer that is required to meet the shared employer responsibility requirements to 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 year. The return is required to include information on the employer’s full-time employees, including those who received the coverage and when they received it.
Notice 2012-32 discusses these requirements, and solicits comments on the following questions:
• How to determine when an individual’s coverage begins and ends for purposes of reporting the dates of coverage.
• How to minimize duplication between the reporting by health insurance issuers and employers under IRC Section 6055 and the reporting by exchanges under Section 36B(f)(3).
• How to coordinate and minimize duplication between the reporting under IRC sections 6055 and 6056, and any other applicable tax code provision for employers that sponsor self-insured plans.
• When minimum essential coverage is provided through a voluntary employees’ beneficiary association or other type of welfare benefit fund, who is required to report under IRC Section 6055 and what, if any, special rules should apply.
• Whether there are any specific concerns that should be taken into account in any of the following circumstances: (a) In the case of electronic information reporting and delivery of statements to individuals and the IRS; (b) If a third party administrator has information that is relevant to reporting for a self-insured plan; (c) If an individual is covered under one type of coverage for part of the year and another type of coverage for another part of the year; and (d) When minimum essential coverage is provided under a multiemployer plan.
• Whether any difficulties exist in identifying the person responsible for administering information reporting for governmental coverage, for example in state-administered programs such as Medicaid.
• Any additional suggestions for minimizing burden on entities reporting information under IRC section 6055.
IRS Notice 2012-33
The third guidance document (Notice 2012-33) requests comments on the reporting requirements applicable to large employers sponsoring insurance coverage under IRC Section 6056, as added by the PPACA. The IRS and Treasury Department will issue regulations to implement these reporting requirements, and issue guidance to minimize the administrative burden of doing so. To this end, the notice seeks comment on issues arising under IRC Section 6056 that would be helpful for the regulations to address, including how to coordinate and minimize duplication between the data employers must report under IRC Section 6056 and the data they must report under IRC Section 6055 (which provides for annual reporting by employers that sponsor self-insured plans) or other applicable tax code or PPACA provisions.
The HHS bulletin, Verification of Access to Employer-Sponsored Coverage, addresses the process for determining eligibility for advance payments of the premium tax credit available to support the purchase of qualified health plans through the exchanges. The bulletin requests comments on a proposed interim strategy and potential regulatory approach for verification of an applicant’s access to qualifying coverage in an employer-sponsored plan.
The Aug. 17, 2011, exchange eligibility notice of proposed rulemaking sought comment on optimal way for exchanges to interact and communicate with employers to verify information regarding employer-sponsored coverage. The proposed rule requested comment on two proposed interim strategies: (1) a sample template that could be used voluntarily by employers and employees to assist applicants in filling out the exchange application; and (2) a database that employers could voluntarily populate with relevant information and that exchanges could access.
After considering stakeholder comments, HHS proposes to provide a standardized way for employees and employers to voluntarily collect and communicate employer-sponsored coverage information needed to complete an exchange application. HHS proposes to allow exchanges to verify employer-sponsored coverage for the 2014 and 2015 plan years through use of limited pre-enrollment verification based on data sources available to an exchange and a post-enrollment verification screening process where data sources are not available during the eligibility determination process. The bulletin notes that when pre-enrollment verification is possible, this is the preferred approach. HHS also seeks comments on long-term verification strategies.
Ilyse Schuman is a shareholder in the Washington, D.C., office of law firm Littler Mendelson.
© 2012 Littler Mendelson. All rights reserved. Republished with permission.
Related SHRM Article:
What's 'Affordable' Coverage Under ACA?, SHRM Online Benefits, February 2014
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page