Employee Benefits & Executive Compensation
Action Item: The government has struck down an important Affordable Care Act planning technique: so-called “middle” or “minimum value” plans. Employers that have implemented such plans or are significantly down the road on implementing such plans should contact us immediately to discuss their ACA strategies. The ACA employer excise taxes are effective for most employers with 50 or more full-time equivalent employees on January 1, 2015.
The U.S. Department of Health and Human Services (“HHS”), U.S. Department of the Treasury (“Treasury”), and Internal Revenue Service (“IRS”) have jointly announced that they will issue regulations that will essentially strike down so-called “middle” plans or “minimum value” plans provided by employers. Such plans typically do not cover hospitalization and/or physician services, and just barely cover 60 percent of the value of the ten essential health benefits that are the focus of the Affordable Care Act (“ACA”).
The ACA provides for a two-tier employer penalty for employers with 50 or more full-time equivalent employees. An employer that does not provide a group health plan for all of its full- time employees is subject to a $2,000 per employee excise tax if any full-time employee purchases individual insurance on an exchange and uses a premium tax subsidy to do so. An employer that provides a group health plan to all of its full-time employees is not subject to that tax. An employer may avoid that tax by offering a “skinny” plan, i.e., a plan that covers only the ObamaCare mandated benefits for employer plans, notably preventive care. Nevertheless, the employer may still be subject to a $3,000 excise tax for each employee who actually purchases insurance on an exchange using a premium tax subsidy. An individual is not eligible for the premium tax subsidy if he or she is covered by an employer group health plan that provides “minimum value” and is “affordable.” A plan provides “minimum value” if it covers at least 60 percent of the costs of essential health benefits. Thus, a plan that provides minimum value and is affordable avoids both excise taxes.
Plan designers have been looking to design plans that just barely cover 60 percent of the costs of “essential health benefits” on an actuarial basis. (see “Employers Looking to ‘Skinny Plans’ to Counter Health Law’s Penalties,” Wall Street Journal, October 22, 2014.) Typically, this is accomplished by excluding hospitalization and/or some or all physician services.
In Announcement 2014-69, the HHS, Treasury, and IRS announced their intention to issue regulations that would define minimum value always to include “substantial” coverage for hospitalization and physician services. An employer plan that does not cover such services would, by definition, not provide minimum value and, therefore, the employer would be at risk for the $3,000-tier excise tax. There would be a delayed effective date for employers that have already implemented such plans.
Employers that have implemented minimum value plans or are significantly down the road on implementing such plans should contact us immediately to discuss their ACA strategies. The ACA employer excise taxes are effective for most employers with 50 or more full-time equivalent employees on January 1, 2015.
