IRS' Final Employer Shared Responsibility Rules: What Is 'Affordable, Minimum Value' Coverage?

Earlier this year, the IRS issued final regulations that provide additional guidance on the employer shared responsibility rules (also called the "pay or play" rules) that will generally apply to employers' group health plans beginning in 2015 under the Patient Protection and Affordable Care Act of 2010 (i.e., the ACA or ObamaCare). Under the ACA, an applicable large employer may be required to pay an employer shared responsibility penalty if it fails to offer affordable, minimum value health coverage to substantially all of its full-time employees and their dependents. Critical to these penalty provisions is the determination of what qualifies as "affordable, minimum value" health coverage. This newsletter describes what it means for an applicable large employer to provide such coverage to its eligible full-time employees. For more information about other aspects of these final rules, including details about the potential penalties, please refer to our related "Pay or Play Rules" newsletters.

What is "Minimum Value" Coverage?

An employer's health care plan provides "minimum value" for purposes of the employer shared responsibility rules if the plan pays at least 60 percent of the total allowed cost of health care benefits provided to eligible plan participants. Regulations issued by the Department of Health and Human Services (DHHS) define a plan's minimum value percentage as: (1) the plan's anticipated covered medical spending for "essential health benefits" for a standard population of participants, that is (2) determined in accordance with the plan's cost-sharing structure, and (3) divided by the total anticipated costs of the essential health benefits provided to that standard population group.

When determining whether a plan provides minimum value, an employer may take into account any amounts it contributes to a participant's health savings account (HSA). For example, if an employer's HSA-eligible health plan has a $1,500 deductible, and the employer makes an annual $500 contribution to its employees' HSAs, the plan will be treated as having a $1,000 deductible for purposes of determining minimum value. In addition, health reimbursement account (HRA) amounts may be taken into account when determining minimum value when they are first made available for the participant's use, provided that they are used only for the participant's cost-sharing, and not to pay insurance premiums. Finally, although wellness program incentives generally...