With employers still struggling with the long list of new rules and regulations under the Affordable Care Act, the last thing they need is a last-minute surprise.

But that’s just what they got on November 4 when the IRS and the Department of Health and Human Services (HHS) announced that any Minimum Value Plan (MVP) that fails to provide substantial coverage for inpatient hospitalization or physician services will no longer qualify as “minimum value.”

MVPs: Great idea, with a loophole

Minimum Value Plans were originally intended to help employers comply with the ACA’s shared responsibility rules by lowering the cost of affordable, minimum value coverage. By offering affordable MVP coverage to all full-time employees, employers would avoid penalties.

Before long, plan sponsors and advocates of MVP arrangements figured out they could still meet the 60 percent value threshold without covering inpatient hospital services or physician services – an arrangement that slashed premiums to less than half the cost of traditional major medical coverage.

But the IRS and HHS never liked this arrangement. Since inpatient hospital and physician services are almost universally covered and historically considered vital benefits in any health insurance plan, these federal agencies have had MVP’s in their crosshairs for a while.

Where does the new ruling leave employers?

The IRS and HHS expect these changes to be finalized in 2015 and apply starting in 2015. But there’s one big hitch: Based on previous guidance, many big companies have built low cost, bronze level plans with no inpatient hospital or physician benefits. Those plans are being offered through open enrollment to employees right now, so the new guidance is throwing a last minute wrench in the works. Now all MVPs have to include hospitalization or physician benefits. It’s a huge shakeup. To rework the bronze plans so they comply, actuaries will have to completely rework the rate structure for those plans.

Limited exception provides some relief

With open enrollment already underway, many MVP arrangements have already been contracted for or enrolled by employers. The good news? The IRS and HHS are providing employers a limited exception that will help some employers for 2015. Any plan for which the employer has “entered into a binding written commitment to adopt, or has begun enrolling employees in, prior to November 4, 2014,” for a plan year to start no later than March 1, 2015, will be recognized as minimum value and help an employer avoid mandate penalties.  For any plan that does not fall within this exception, the plan would not represent minimum value and would therefore effectively be a “skinny” plan satisfying only the Code 4980H(a) penalty, the first prong of the employer mandate.

Additional notice requirements

The IRS and HHS also imposed new noticing requirements for employers that offer coverage under MVP arrangements, stating that those employers: 

• Cannot state or imply that an offer of coverage under an MVP arrangement will preclude an employee from obtaining a premium tax credit; and
• Must correct any prior disclosures that stated or implied that the offer of the MVP arrangement would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.

As with many other aspects of the Affordable Care Act, there are still some wrinkles to be ironed out with the MVP arrangements. While the government number crunchers are hard at work, you should be working with your insurance provider to determine exactly how this last minute surprise affects your business and how you’ll adapt.

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