A recent Washington Post article (“Glitch in health care law allows employers to offer substandard insurance,” September 12, 2014) highlights an Affordable Care Act compliance strategy being marketed heavily (and adopted widely) in industries that traditionally did not previously offer coverage to large cohorts of variable hour and contingent workers. (We discussed these arrangements in a previous post. The strategy—which is referred to commercially as a “minimum value plan” or “MVP”— involves an offer of group health plan coverage that, while similar in most respects to traditional major medical coverage, carves out inpatient hospital services.
The Washington Post article (and other commentary) engages in some hand-wringing about why these plans are inconsistent with the goals of the Act. One commentator fumed that an employer that offers these arrangements should “examine its conscience.” (Readers might recall a similar bout of hand-wringing that accompanied “skinny” plans.)
It’s time to take breath.
Whether these plans were “intended,” or whether they are consistent with Obamacare, is irrelevant. Under currently applicable laws and regulations, these plans appear to work as advertised. Moreover, no employer is required to do anything more than the law requires; and any employer that does risks putting itself at a competitive disadvantage relative to those that do not. The regulators are free to change the rules. Despite a high likelihood that they are aware of these plans, however, they have not yet seen fit to act.
MVP arrangements are generally offered in a suite of products and accompanying administrative services that include:
A “Minimum Essential Coverage” or “MEC” plan (previously known as a “skinny plan”)
These plans qualify as an offer-of-coverage for purposes of the more severe of the two levels of penalties, i.e., the penalty for failing to make an offer of coverage to substantially all full-time employees.
A “hospital or fixed indemnity plan”
A hospital or fixed indemnity plan is a type of plan that pays fixed amounts for specific medical services and care. These plans are structured as “excepted benefits” that are not subject to the Affordable Care Act’s insurance market reforms and other requirements when offered on a non-coordinated basis. That is, employees must be free to elect or reject this coverage independent of any other coverage they might elect or reject.
An MVP arrangement is a major medical plan that carves out inpatient hospital services. The goal is to reduce the aggregate premium cost of minimum value coverage so that the cost of providing coverage that is “affordable” is similarly lowered. For example, the premium cost of a traditional major medial plan offered on a fully-insured basis by a top-tier, national carrier might be, say, $500 or more. But for an MVP arrangement the cost might be $200. (MVP arrangements are generally if not universally self-funded.)
To understand the benefits of an MVP arrangement requires an understanding of “minimum value.” Group health plan coverage is deemed to provide minimum value if the “percentage of the total allowed costs of benefits provided under a group health plan” is at least 60% of all plan benefits, without regard to co-pays, deductibles, co-insurance, and employee premium contributions. Under a final rule issued by the Department of Health and Human Services (HHS), the “percentage of the total allowed costs of benefits provided under a group health plan” is defined as—
The anticipated covered medical spending for essential health benefits (EHB) coverage paid by a health plan for a standard population,
Computed in accordance with the plan’s cost-sharing, and
Divided by the total anticipated allowed charges for EHB coverage provided to a standard population.
EHB includes a list of 10 categories of coverage that individual and small group plans must cover. While self-funded groups and large fully insured groups are not required to cover all EHBs, whether they provide minimum value is determined by comparing the benefits provided to a benchmark set of EHBs. Among other methods, HHS permits employers to determine minimum value using an on-line calculator. Employers can input a set of standard plan design parameters, for which the calculator will return a value. If the value is 60% or greater, the plan is deemed to provide minimum value.
The MVP conundrum
The MVP strategy is shockingly simple: remove the high cost items from the plan (i.e., inpatient hospital services) from the plan while being more generous with other EHB components and by adopting generous cost-sharing features. This leads to two interrelated, but separate, questions:
(1) Is it even possible for a plan to get to 60% minimum value without covering inpatient hospital services?
We don’t know for certain—even reasonable actuaries seem to disagree. For a dissenting view, see an article by Hobson D. Carroll, FSA, President, MedRisk Actuarial Services, Inc., entitled, “A Dangerous Game—Testing the Limits of the MV Calculator as Sole Determiner of Minimum Value,” published August 13, 2014.
(2) For purposes of calculating assessable payments under the Act employer shared responsibility rules, can an MVP arrangement be deemed to provide minimum value?
Here the answer appears to be, yes.
The matter of what services a plan might need to cover was examined in a November 2011 report entitled, “Actuarial Value and Employer-Sponsored Insurance,” ASPE Research Brief, U.S. Department of Health and Human Services. The report concluded that four core categories of benefits and services are the greatest contributors to a health plan’s actuarial value: physician and mid-level practitioner care; hospital and emergency room services; pharmacy benefits; and laboratory and imaging services. Because they account for only a very small portion of overall medical expenditures, benefits and services beyond these four core categories of benefits that are covered by a plan generally have only a limited impact on the plan’s actuarial value.
The HHS report was cited with approval in a notice published in 2012 (Notice 2012-31) in which the Treasury Department and IRS anticipated that getting to 60% minimum value would require coverage of all four major categories. When discussing the anticipated use of an online calculator as one means of determining a plan’s minimum value, here’s what they said:
“[The] calculator generally would be used to make minimum value determinations by employer-sponsored plans that have standard cost-sharing features. An employer-sponsored plan would be able to input a limited set of information on the benefits offered under the plan and specified cost-sharing features (for example, deductibles, co-insurance, and maximum out-of-pocket costs) for the four core categories of benefits: physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services. The calculator would also take into consideration the annual employer contributions to an HSA or amounts made available under an HRA, if applicable.”
But this is not what happened (at least so far). A subsequent proposed regulation (Proposed Treasury Regulation § 1.36B-6(c)(1)) does not impose a requirement that a plan must cover all four categories in order to reach minimum value. The preamble to that proposed regulation instead explained that:
“The proposed regulations do not require employer-sponsored self-insured and insured large group plans to cover every EHB category or conform their plans to an EHB benchmark that applies to qualified health plans. The preamble to the HHS regulations (see 78 FR 12833) notes that employer-sponsored group health plans are not required to offer EHBs unless they are health plans offered in the small group market subject to section 2707(a) of the Public Health Service Act.” (Emphasis added.)
The regulation provides:
(c) MV percentage—(1) In general. An eligible employer-sponsored plan’s MV percentage is—
(i) The plan’s anticipated covered medical spending for benefits provided under a particular essential health benefits (EHB) benchmark plan described in 45 CFR 156.110 (EHB coverage) for the MV standard population based on the plan’s cost-sharing provisions;
(ii) Divided by the total anticipated allowed charges for EHB coverage provided to the MV standard population; and
(iii) Expressed as a percentage.
Admittedly clause (i) is not intuitively obvious. But any doubt about its import is dispelled by looking to the CMS document that explains the MV calculator methodology. Here is what CMS has to say (page 6):
“Because large employer plans are not required to cover the essential health benefits (EHB), the MV Calculator allows the user to indicate that a service listed in the calculator is not covered. In order to account for the shift in the total per member per year (PMPY) average spending distribution when removing carved-out services, the following adjustment is performed. First, the proportion of average spending that the carved out services account for is calculated for every point in the continuance tables. This proportion is then multiplied by the ratio between the total spending level and average per member per year spending for enrollees capped at that spending level, and then subtracted from the total spending level. This creates a new continuance distribution with modified total spending but unmodified utilization rates. The MV calculation proceeds regularly, with carved-out services subject to the deductible, 0% coinsurance, and their MOOP [(maximum out-of-pocket)] removed from the numerator but not from the denominator of the MV calculation.”
Thus, the numerator begins with all of the EHBs in a particular benchmark plan, but then backs out those items that the plan does not cover. (In the case of an MVP arrangement, that includes inpatient hospital services.)
The role of Department of Health and Human Services (HHS) and the Treasury Department/IRS in MV determinations requires some explaining. The provisions of the Internal Revenue Code dealing with premium tax credits include what has been referred to as a “firewall” under which an individual who is otherwise eligible for a premium tax credit is rendered ineligible if he or she is offered coverage under an eligible employer-sponsored plan (which would include an MVP arrangement) if that coverage is affordable and provides minimum value. But the Act delegates to HHS the job of establishing rules governing MV. Thus, one needs to look to HHS rules for this purpose, for which there is a final rule. According to 45 CFR 156.145(a) employers may use one of four methodologies to determine MV:
The MV Calculator made available by HHS and the Internal Revenue Service (IRS). If a group health plan offers benefits outside of the MV calculator, the plan may seek an actuary to determine the value of those benefits and adjust the MV calculator results accordingly;
Any safe harbor established by HHS and the Internal Revenue Service;
A group health plan may seek certification by an actuary to determine MV if the plan contains non-standard features that are not suitable for either of the above methods; or
Any plan in the small group market that satisfies any of the metal tiers (platinum, gold, silver, and bronze) is deemed to provide minimum value.
MVP arrangements are designed to avoid non-standard features. They get to minimum value with the inputs on the face of the calculator. Thus, for an MVP arrangement, MV is what HHS says it is, and HHS says that MV is what the calculator says it is.
As the title of the Washington Post article referenced above demonstrates, the “blame” for MVP arrangements is being placed on faults under the hood of the calculator. But to date, we have not encountered any rigorous demonstration making the case for that claim. Moreover, even a cursory reading of the HHS document explaining the calculator methodology leads to the conclusion that a great deal of time, thought, effort and expertise was expended in the process of building the calculator. So it may be that the calculator works as it was intended.
But it does not matter. At present, MV is what the calculator says it is. The regulators are free to change that. Given that many MVP arrangements have already been contracted for, and many other are near being signed, one would hope from a purely practical perspective that these arrangements are permitted to go forward at least for 2015. And, yes, the coverage under an MVP arrangement is less than desirable. As such, employers will need to be particularly attentive to the way that they communicate the terms to employees. Any failure to call prominent attention to the lack of inpatient hospital services will almost certainly result in participant claims under ERISA and perhaps other Federal and state laws.