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Health plans that fail ACA minimum value test to get one-year pass: IRS

Health plans that fail ACA minimum value test to get one-year pass: IRS

Group health care plans that do not provide coverage for hospital care will not pass the health care reform law's “minimum value” test, but the Internal Revenue Service is giving a one-year pass to existing or soon to be implemented plans excluding the coverage.

Ending months of uncertainty on the issue, the IRS on Tuesday said such plans do not provide the minimum value requirement and that regulators will shortly propose regulations to this effect.

The IRS announcement involves a section of the Patient Protection and Affordable Care Act that imposes, starting in 2015, stiff penalties on employers offering plans that do not pass an ACA minimum value test.

To pass that test, plans must pay for 60% of covered services. If a plan does not pass the minimum value test, lower-income employees — those earning up to 400% of the federal poverty level — can go to public insurance exchanges to obtain coverage, with the federal government subsidizing their premiums.

In that situation, employers are liable for a $3,000 penalty for each employee who obtains the subsidized coverage.

Likely due to a flaw in a government online calculator, low-cost plans that excluded coverage for hospital services were able to pass the minimum test, benefit experts said.

That, in turn, fueled interest in the plans, which cost about half the price of more traditional plans, especially from employers who have not offered coverage and starting in 2015, faced an ACA mandate to offer coverage or be hit with a stiff financial penalty.

But in its Tuesday announcement, the IRS said plans excluding hospital coverage fail the minimum value requirement.

The IRS, in its notice, suggested that its calculator gave faulty results. The IRS, Treasury and the Department of Health and Human Services are considering whether the calculator produced “valid actuarial results.”

Still, perhaps because its own software was to blame, the IRS said employers that — prior to Nov. 4 — entered into a “binding written commitment” to offer plans excluding hospital coverage or began to enroll employees in the plans could offer the plans through the end of the next plan year.

In that situation, the employer would not incur a penalty, even if eligible employees opted for subsidized coverage through the public exchanges.

“That is appropriate relief,” given that employers relied on a government calculator in determining if the plans offers minimum value, said Rich Stover, a principal at Buck Consultants at Xerox in Secaucus, New Jersey.

“It is a win-win. Employers can still offer the plans for a year, and their employees can get robust coverage in exchanges without” the employers being penalized, said Ed Fensholt, senior vice president and director of compliance services at Lockton Cos. L.L.C.'s benefit group in Kansas City, Missouri.

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