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Health Plans That Fail Minimum Value Test Get One-year Reprieve

The IRS has announced that group health plans that don’t provide hospital coverage do not satisfy the Affordable Care Act’s “minimum value” test, but they will be approved for use in the 2015 policy year.

The IRS announcement put to an end concern and confusion over why a benefits calculator on the IRS website approved group health plans that did not provide inpatient coverage.

The IRS promised that new regulations that will eliminate this unanticipated loophole would be released shortly before the end of 2014.

The resolution is good news for employers because it eliminates a major source of confusion and uncertainty. That’s because the ACA imposes, starting in 2015, heavy penalties on employers that offer their workers plans that do not meet the law’s minimum value test.

In order to pass muster, a health plan must pay for at least 60% of covered services. If a plan does not pass the minimum value test, there could be financial repercussions that could quickly spiral.

If an employer offers such a plan and any of its workers purchase insurance from a state or federally run public health insurance exchange and they receive government subsidies, the employer would be liable for a fine of $3,000 for each employee that obtains subsidized coverage.

Likely due to what many think was an error in a benefits calculator on the Department of Health and Human Services website, low-cost plans that excluded coverage for hospital services are able to pass the minimum test.

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.

The IRS, in its notice, said that the calculator had failed to produce “valid actuarial results.”

In its announcement, the IRS said employers that – prior to Nov. 4 – had entered into a “binding written commitment” to offer plans excluding hospital coverage or had begun to enroll employees in the plans, could offer them through the end of the next plan year.

In those cases, the employers would not incur a penalty, even if eligible employees opted for subsidized coverage through the public exchanges.

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