Updated Proposed Regulations Issued: Inpatient Hospital and Physician Services Must Be Covered

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Tuesday the IRS issued proposed regulations that require an employer-sponsored health plan to include substantial coverage of inpatient hospital and physician services in order for the plan be considered as providing minimum value. This is not a surprise as in November 2014, Notice 2014–69 was released advising taxpayers of the intent to propose regulations providing that plans that fail to provide substantial coverage for inpatient hospitalization or physician services do not provide minimum value.

The IRS explained that allowing plans that did not offer substantial coverage of inpatient hospital or physician services to be treated as providing minimum value would adversely affect employees with significant health problems. Furthermore, the IRS explained that those employees may find such coverage insufficient and such employee would not be eligible for a premium credit for the coverage that they were forced to purchase through an exchange. In addition, the employer would avoid the Sec. 4980H employer shared-responsibility penalty.  While adding the new requirement regarding inpatient hospital and physician services, the updated Proposed Regulation 1.36B-6(a) retains the 60% minimum value requirements. Remember, former Proposed Regulation 1.36B-6(a) provided that an eligible employer-sponsored plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to an employee is at least 60%.    HHS did not think this was an adequate assessment of minimum value as “plans that omit critical benefits used disproportionately by individuals in poor health would likely enroll far fewer of these individuals, effectively driving down employer costs at the expense of those who, because of their individual health status, are discouraged from enrolling.”

While the new rule would apply to plan years beginning after November 3, 2014, a transition rule provides that the new definition of minimum value will not apply before the end of a plan year beginning no later than March 1, 2015, provided that the employer entered into a commitment to adopt the noncompliant plan or had begun enrolling employees in such plan later than November 3, 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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