New HHS Rules for 2016 Tighten "Minimum Value" Standard An apparently unintended loophole in the Affordable Care Act (ACA) has been closed. Under previous rules, large employers (as defined under the act) would have been able to satisfy the ACA's "minimum value" test for health care coverage by offering streamlined plans that didn't cover inpatient hospital visits. "Final Notice of Benefit and Payment Parameters for 2016," issued by the Department of Health and Human Services (HHS), has announced that this is no longer allowed, though employers that had signed contracts for 2015 plans by Nov. 4, 2014, are permitted to keep those plans in place this year. Make no mistake, the action is significant even for employers that didn't intend to exclude inpatient coverage in their health plans. This is because, to some extent, it calls into question approved or proposed methods that large employers might use to determine whether their plans satisfy the minimum value standard. Required Hospitalization Benefits Small-market and public Health Insurance Marketplace individual plans are required to cover the 10 "essential health benefits," which include hospitalization coverage. In contrast, the minimum standard for large employer plans is to cover at least 60 percent of the "total allowed costs of benefits provided under the plan." "In order to meet minimum value standards, a plan must provide a benefit package that reflects benefits historically provided under 'major medical' employer coverage," the HHS announcement stated. "Specifically," it concluded, "to satisfy the minimum value requirement, coverage must include substantial coverage of both inpatient hospital services and physician services." The now-banned plan design did pass muster using the official, downloadable "MV calculator" created by the HHS and IRS to allow employers to determine their plan's actuarial value. Inpatient hospital services are an input variable in the calculator. A zero value entry could be offset by more generous benefits in other areas, such as outpatient services, enabling the design to meet the 60 percent minimum value test. 3 Safe Harbors
Remaining allowable paths to ascertaining minimum value compliance include certification by an actuary and adopting a safe harbor design that includes all of the variables (including inpatient hospital services) on the MV calculator's list of inputs. In 2013, the IRS published proposed regulations that, among other things, described safe harbors from the minimum value requirement for certain plan features. Those proposed regulations, which have yet to be finalized, presumably remain more authoritative today than the MV calculator. Here's a list of three safe harbor designs in those proposed rules: 1. A plan with a $3,500 integrated medical and drug deductible, 80 percent plan costsharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing. 2. A plan with a $4,500 integrated medical and drug deductible, 70 percent plan costsharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to a Health Savings Account. 3. A plan with a $3,500 medical deductible and a $0 drug deductible, 60 percent plan medical expense cost-sharing and 75 percent plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug copays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75 percent coinsurance for specialty drugs. Disclosure Rule and Other Highlights The HHS's "Final Notice of Benefit and Payment Parameters for 2016" includes a new disclosure requirement for small and individual health plans. Specifically: Issuers seeking rate increases of 10 percent or more (or above a state-specific threshold) for non-grandfathered coverage... are required to publicly disclose the proposed increases and the justification for them, and the increases are reviewed by state or federal regulators to determine whether they are unreasonable. From there, the HHS goes into much more detail on health care coverage requirements of which employers and plan participants should be aware. Important highlights include: Premium adjustment percentage index. The 2016 maximum annual limitation on cost sharing will be $6,850 for self-only coverage and $13,700 for other than self-only coverage. An 8.1 percent required contribution percentage will be in place for 2016. Reduced maximum annual limitation on cost sharing. For individuals with household incomes of 100 percent to 200 percent of the federal poverty level, the 2016 reduced maximum annual limitation on cost sharing for self-only coverage will be $2,250. For individuals with incomes of 200 percent to 250 percent of the federal poverty level, the reduced maximum annual limitation on cost sharing for self-only coverage will be $5,450. Formulary drug list. A plan must publish an up-to-date, accurate and complete list of all covered drugs on its formulary drug list. Published information needs to describe any tiering structure used and disclose any restrictions on the manner in which a drug can be obtained. Benefits discrimination. Existing rules provide that "an issuer does not provide essential health benefits if its benefit design, or the implementation of its benefit design, discriminates based on an individual's age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions." Practices that may be considered
discriminatory include: 1) restricting services based on age when the service may be appropriate for all ages, and 2) placing most or all drugs for a specific condition on a high cost-sharing tier. Revised essential health benefits benchmark selection. States may select new benchmark plans for 2017, based on plans available in 2014. Broad Implications These HHS regulations, which are primarily directed at insurers, are notably complex in nature. Nonetheless, they have broad implications for employers that sponsor group health plans. Specifically, the HHS regs may foreshadow more rules to come including, for instance, guidance on discriminatory benefit designs. Work with your benefits adviser to clarify whether and how the rules may apply to your organization's coverage. IRS Notice 2015-17: Limited Relief for Payment Plan Violations The IRS has long held the position that, subject to narrow exceptions, an employer violates the Affordable Care Act's (ACA's) annual dollar limit and preventive services mandates by reimbursing or paying employee premiums for individual health insurance. This is because such "employer payment plans" are treated as separate group health plans that impose prohibited limits but cannot be integrated with the individual policy coverage. After articulating this position in Notice 2013-54, the IRS has repeated it in Q&As, FAQs and information letters emphasizing the severe excise tax consequences of violating these mandates. Now the agency has issued Notice 2015-17, also written in Q&A format, which covers some new ground by providing relief in limited circumstances. Temporary Transitional Relief Per Notice 2015-17, the IRS won't impose excise taxes otherwise assessable under the ACA's shared-responsibility (or "play or pay") provision for employer payment plans maintained in 2014 or the first six months of 2015 (specifically, through June 30, 2015) by small employers that is, those not defined as large employers under the ACA. Employers eligible for the relief are also excused from the requirement to self-report these violations on Form 8928. Under the ACA, a large employer is one with at least 50 full-time employees or a combination of full-time and part-time employees that's equivalent to at least 50 full-time employees. This involves totaling part-time employees' monthly hours and dividing that figure by 120 to calculate full-time equivalent employees (FTEs). That figure is then added to the total number of actual full-time employees. A full-time employee generally is someone employed on average at least 30 hours a week, or 130 hours in a calendar month. Importantly, the relief doesn't apply to stand-alone Health Reimbursement Arrangements (HRAs) or other arrangements to reimburse any expenses other than insurance premiums. Therefore, it appears that the IRS does expect large employers with employer payment plans to file Form 8928 for violations. Also, Notice 2015-17 doesn't extend relief to "midsize" employers those with 50 to 99 full-time employees or the equivalent, a group that technically falls within the ACA's "large employer" definition but is excused from play-or-pay penalties for 2015 under certain
conditions. Pending S Corporation Guidance Notice 2015-17 also addresses "2 percent shareholder-employee health care arrangements." Under these arrangements, an S corporation pays for or reimburses premiums for individual health insurance coverage for a "2 percent shareholder" (generally, employees owning more than 2 percent of the corporation's stock), whereby the payment or reimbursement is included in income and the premiums are deductible by the 2 percent shareholder-employee. Pending the issuance of additional guidance on these arrangements, Notice 2015-17 provides that an S corporation won't be subject to the play-or-pay provision or required to file Form 8928 solely as a result of having a 2 percent shareholder-employee health care arrangement. This relief doesn't apply to employees who aren't 2 percent shareholders though the temporary relief for small employers, as described above, may apply. S corporations and their advisers will want to read this relief carefully and watch for future guidance. The Notice also clarifies that a plan covering only one individual as an active employee even if it covers other employees as that employee's dependents is generally not a group health plan subject to the annual limit and preventive services mandates. Notably, there's no mention of partnerships, which often maintain similar arrangements. But they may be addressed in anticipated additional guidance. Medicare Premium Reimbursement Arrangements For purposes of complying with the annual limit and preventive services mandates, Notice 2015-17 permits an employer's reimbursement of Medicare Part B or Part D premiums to be integrated with another group health plan offered by the employer. But this is permissible only if: The employer offers a group health plan (other than the premium reimbursement arrangement) to the employee that doesn't consist solely of excepted benefits and offers coverage providing minimum value, The employee participating in the premium reimbursement is enrolled in Medicare Parts A and B, Premium reimbursement is available only to employees who are enrolled in Medicare Part A and Part B or Part D, and Reimbursement is limited to Medicare Part B or Part D premiums and premiums for excepted benefits, including Medigap premiums. The Notice cautions that this kind of Medicare premium reimbursement arrangement for active employees may be subject to restrictions under other laws, such as the Medicare Secondary Payer (MSP) provisions.
For example, reimbursing Medicare premiums may violate the MSP provision that prohibits employers from incentivizing Medicare-eligible individuals to not enroll in the employer's group health plan. Thus, this relief may be limited to employers that fall within an MSP exception, such as that available for certain small employers. If the integration criteria aren't met, the arrangement will presumably violate the mandates in question, unless other relief applies. Note that retiree-only arrangements in which not more than one active employee participates aren't subject to these mandates and don't need the relief provided under Notice 2015-17. TRICARE-Related HRAs The Notice also permits an HRA that pays or reimburses medical expenses for employees covered by TRICARE to be integrated with another group health plan offered by the employer for purposes of complying with the ACA's annual dollar limit and preventive services mandates. TRICARE is a health care program of the U.S. Department of Defense Military Health System. HRAs generally must be integrated with a group health plan to satisfy the annual limit prohibition, and integration with TRICARE isn't available because TRICARE isn't a group health plan. TRICARE relief is available only if: The employer offers a group health plan (other than the HRA) to the employee that doesn't consist solely of excepted benefits and offers coverage providing minimum value, The employee participating in the HRA is enrolled in TRICARE, The HRA is available only to employees who are enrolled in TRICARE, and Reimbursement is limited to cost-sharing and excepted benefits, including TRICARE supplemental premiums. Like the Medicare relief discussed above, this relief may have limited appeal because the TRICARE incentive prohibition rules may restrict its use primarily to small employers. And, as with the Medicare relief, if the integration criteria aren't met, the arrangement will presumably violate the mandates in question, unless other relief applies. Tax Matters Notice 2015-17 confirms that an employer may increase an employee's taxable compensation, not conditioned on the purchase of health coverage, without creating an employer payment plan (or any group health plan at all). In addition, the IRS has clarified that after-tax employer payment plans are subject to excise tax. The Notice reiterates the agency's previously expressed position that an employer's payment or
reimbursement of employees' individual health insurance premiums is a group health plan subject to the market reforms even if the payments or reimbursements are made on an after-tax basis. The Notice also states that the Department of Labor and Department of Health and Human Services have reviewed and expressed their agreement with Notice 2015-17. Additional clarifications on other aspects of employer payment plans and HRAs are expected in the near future. Next Steps Forward The IRS has gone out of its way to emphasize repeatedly the compliance problems and potential excise taxes posed by paying or reimbursing employees' individual insurance premiums (or reimbursing medical expenses other than through an integrated HRA). And, no doubt, the transitional relief provided here is welcomed by small employers. Large employers, however, still face stiff penalties for noncompliance. The IRS expects employers with 50 or more full-time employees or the equivalent to either discontinue employer payment plans or self-report their violations and pay excise taxes. And while Notice 2015-17 refers to all of the relief as "transitional," it doesn't specify any durational limit for the Medicare or TRICARE relief. Plan sponsors with any type of individual premium-payment arrangement (or nonintegrated expense reimbursement arrangement) should consult with their benefits advisers and legal counsel to determine the next steps forward. Can Our Plan Require Preauthorization for OB/GYN Services? Question: Our company's self-insured group health plan requires preauthorization for certain obstetrical and gynecological (OB/GYN) services. Is this plan design permissible under the patient protection provisions of the Affordable Care Act (ACA)? Answer: Yes, so long as the preauthorization requirement applies to specific OB/GYN services and doesn't restrict access
to any providers specializing in obstetrics or gynecology. The ACA's patient protections require a choice of health care professionals, including OB/GYN providers. A group health plan may not require preauthorization or referral by the plan or any person, including a primary care physician, when a female participant or beneficiary seeks OB/GYN care provided by a participating provider who specializes in obstetrics or gynecology (which may include non-physician health care professionals authorized under state law to provide OB/GYN care). However, a plan may require that all other plan policies and procedures be followed, including obtaining preauthorization for certain services. For example, a plan could require preauthorization for a particular service uterine fibroid embolization, for instance so long as it doesn't restrict access to any participating providers specializing in OB/GYN.