IRS Notices Request Comments on Minimum Value and Reporting Requirements

Practical Law Legal Update 7-519-1915 (Approx. 7 pages)

IRS Notices Request Comments on Minimum Value and Reporting Requirements

by PLC Employee Benefits & Executive Compensation

Notice 2012-31

Beginning in 2014, individuals who buy coverage under a qualified health plan (QHP) from an insurance exchange can receive a premium tax credit under Section 36B of the Internal Revenue Code (IRC), which was added under the ACA. This tax credit is unavailable, however, if the individual is eligible for minimum essential coverage, an ACA concept that includes coverage under an employer-sponsored plan that:

Is affordable to the employee.
Provides minimum value.

In general, an employer-sponsored health plan fails to provide minimum value if the plan's share of total allowed costs of benefits is less than 60% of the costs. IRS Notice 2012-31 describes and requests comments on three potential approaches for determining whether health coverage under a plan provides minimum value. Whether plan coverage provides minimum value is therefore important in determining individual eligibility for the Section 36B premium tax credit. Under IRC Section 4980H, certain large employers may be subject to a penalty tax if any full-time employee receives the Section 36B premium tax credit.

Options for Determining Minimum Value

Notice 2012-31 describes and seeks public comment on three potential approaches that plans could use to determine whether their coverage provides minimum value. The IRS is considering incorporating these approaches in proposed regulations. The three potential approaches are:

An actuarial value (AV) or minimum value (MV) calculator.
A set of design-based safe harbors.
Certification by a certified actuary.

Actuarial Value/Minimum Value Calculator

Under this method, an employer-sponsored plan could calculate its actuarial value by inputting information about the plan's cost-sharing features (deductibles, co-pays and maximum out-of-pocket costs) for various types of benefits into a calculator. In February 2012, HHS issued a bulletin addressing an AV calculator for QHPs and plans in the small group markets to determine actuarial value. Notice 2012-31 proposes that the HHS and the IRS will also issue an MV calculator, similar in concept to the AV calculator, for self-insured plans and large group insured plans to enter cost-sharing information and determine actuarial values. The AV and MV calculators would be available for plans with standard cost-sharing features. Unlike the AV calculator, the MV calculator would be based on continuance tables reflecting claims data:

Typical of self-insured employer plans.
Representative of the range of benefits covered by self-insured plans.

If applicable, the calculator could also reflect:

Annual employer contributions to health savings accounts (HSAs).
Amounts made available under health reimbursement arrangements (HRAs).

Design-based Safe Harbor Checklists

A second alternative would include a set of safe harbor checklists to which an employer-sponsored plan could compare its coverage. Under this option, the plan would not need to perform calculations or hire an actuary. If, on comparison, the plan's terms are consistent with or more generous than any one of the safe harbor checklists, the plan would be treated as providing minimum value.

The checklists could be used for plans that:

Cover four core categories of benefits and services (for example, hospital and emergency room services).
Have specified cost-sharing amounts.

Each checklist would describe the plan's cost-sharing attributes applicable to the four core categories. A plan providing the four core categories would be treated as offering minimum value if its cost-sharing features are at least as generous as the safe harbor checklist options. The safe harbor would also include options for coverage equivalent to a high-deductible health plan (HDHP) combined with an employer-funded HSA.

Actuarial Certification

Plans with nonstandard features would not be able to determine their actuarial value using the AV or MV calculator or the safe harbor checklists. An example of a nonstandard feature is a quantitative limit on any of the four core categories of benefits and services, such as a limit of the allowable doctor visits or covered days in hospital. For these nonstandard plans, an actuarial certification would be appropriate. Under this option, a plan with nonstandard features could:

Generate an initial value using a calculator.
Hire an actuary to make appropriate adjustments that reflect the plan's nonstandard features.

The certified actuary would make the actuarial value determination using prescribed continuance tables and recognized actuarial standards. Also, employer-sponsored plans with certain kinds of nonstandard features could hire a certified actuary to determine the plan's actuarial value without using a calculator.

Request for Comments

Notice 2012-31 requests comments on:

Issues that plan sponsors and health insurers may face in assessing plan designs that will cover all or part of 2014, and transitional relief for plan years starting before and ending in 2014.
Possible alternatives for assessing whether an employer-sponsored plan provides minimum value.

Specifically, the IRS requests comments on:

Whether and how the actuarial value generated by the AV or MV calculator could be adjusted to reflect plan benefits outside the four core categories (for example, wellness benefits).
The quantitative limits that employer-sponsored plans commonly use today.
Other plan features that could require the plan to adjust the valuation generated by the AV or MV calculator.
Terms that should be included in the safe harbor checklists.
Types of plans for which safe harbor checklists should be developed.

Comments should be submitted in writing to the IRS on or before June 11, 2012.

Notice 2012-32

IRC Section 6055 requires insurers, employers that self-insure and others that provide minimum essential coverage to file annual returns reporting certain information to the IRS. Minimum essential coverage includes any "eligible employer-sponsored plan," which generally:

Includes group health plan or insurance coverage offered by an employer.
Excludes certain excepted benefits.

The reporting entity must also furnish a written statement to each individual listed on the return showing the information reported to the IRS for that person. The reporting requirements apply for coverage provided on or after January 1, 2014, and the first information returns will be filed in 2015.

In advance of proposed regulations to be issued regarding the Section 6055 requirements, IRS Notice 2012-32 requests comments on the reporting requirements. According to the IRS, if coverage is provided by an insurer and consists of coverage through an employer-sponsored group health plan, the regulations would likely make the insurer responsible for the reporting.

In Notice 2012-32, the IRS requests comments on issues that should be addressed in the regulations implementing Section 6055, including:

How to determine when an individual's coverage begins and ends for purposes of reporting the dates of coverage, which is required content under Section 6055.
How to coordinate and minimize duplication between the reporting:
- by insurers and employers under Sections 6055 and 6056;
- by Exchanges under Section 36B; and
- under other applicable IRC provisions for employers that sponsor self-insured plans.
Specific issues involving:
- electronic information reporting and the delivery of statements to individuals and the IRS;
- situations where third-party administrators (TPAs) hold information relevant to the reporting for self-insured plans; or
- individuals covered under one type of coverage for part of the year and another type of coverage for another part of the year.

Comments should be submitted in writing to the IRS on or before June 11, 2012.

Notice 2012-33

IRC Section 6056 requires certain large employers that are subject to the ACA's pay or play tax to file a return with the IRS:

Applicable for health coverage provided on or after January 1, 2014.
That reports the terms and conditions of the coverage provided to the employer's full-time employees for the year.

Related written statements must also be provided to employees. IRS Notice 2012-33:

Invites comments on reporting under Section 6056.
Indicates that the IRS intends to propose regulations implementing Section 6056.

Notice 2012-33 requests comments on issues that would be helpful for the proposed regulations to address, including possible approaches for coordinating and minimizing duplication between the information required to be reported under Sections 6056 with Section 6055, other applicable IRC provisions or other ACA requirements. Comments must be submitted to the IRS by June 11, 2012.

Proposed Eligibility Rules for Insurance Exchange

In a related development, the IRS issued proposed regulations addressing eligibility rules for the insurance exchanges added under the ACA. The exchanges, using an HHS program, must generally determine whether individuals are eligible for:

QHPs offered through the exchanges.
The related premium tax credit and cost-sharing reductions available to individuals who seek coverage through the exchanges.

After an individual applies to an exchange for financial assistance for obtaining health coverage, the IRS will disclose certain components of the individual's tax return information to HHS, which will in turn disclose the information to the exchange that processes the application (for example, the individual's modified adjusted gross income (MAGI)). The IRS acknowledges that in some situations it will be unable to calculate MAGI, in which case it will disclose the individual's adjusted gross income. The proposed regulations also request public comments, which the IRS must receive by 90 days after the regulations are published in the Federal Register.

Employer Verification

Individuals are eligible for the premium tax credits only if they do not have access to minimum essential coverage, which includes employer-sponsored coverage. HHS has proposed guidance to assist the exchanges in verifying an individual's access to qualifying coverage in an employer-sponsored plan. The guidance:

Would use pre-enrollment and post-enrollment verification procedures (for example, a manual screening of enrollees).
Permit an exchange to compare an individual's coverage attestation to existing data sources and records available to the exchange (for example, state quarterly wage databases).

HHS notes in the guidance that there may be ways to leverage required under other reporting requirements, including the data that insurers and employers must provide on Form 5500 and under IRC Sections 6055 and 6056.

Practical Implications

Although only proposed approaches at this point, the Notice 2012-31 methods for determining minimum value offer an interesting glimpse of what the regulations to follow may look like. Depending on when guidance on this issue is finalized, employer-sponsored plans, particularly those with more complicated benefit features, may be most concerned with the availability of transitional relief applicable for plan years that start before and end in 2014.

For a discussion of the ACA requirements involving the insurance exchanges, see Practice Note, The Health Insurance Exchange and Related Requirements under the ACA.

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