Agencies Come Down Hard on Various Employer Health Plans and Arrangements

As we move into 2015, employers continue to grapple with numerous Health Care Reform concepts.  Employers should be cautious regarding arrangements promoted to avoid health care penalties because the agencies are cracking down, as shown below.

On November 4, 2014, the IRS and other agencies indicated that they have become aware that group health plans that do not provide coverage for in-patient hospitalization and physician services are being promoted to employers as providing “minimum value coverage” that would allow the employer to avoid some Health Care Reform penalties if other requirements are met.  The Departments believe that such plans do not provide minimum value coverage and are going to implement regulations to this effect in 2015.  For more information, see IRS Notice 2014-69.

In a similar vein, on November 6, 2014, the agencies issued additional Health Care Reform FAQs, making the following clarifications:

•  Q&A 1 clarifies that both employer pre-tax and after-tax reimbursements for individual health insurance policies violate Health Care Reform rules;

•  Q&A 2 clarifies that employers cannot offer employees with high claims risk a choice between enrollment in its standard group health plan or cash.  Such an arrangement violates rules prohibiting discrimination based on health status factors; and

•  Q&A 3 reiterates that employers cannot set up HRAs and allow employees to purchase individual policies using the HRA funds.

Skinny plans, which often cover preventive care but little else, do not appear to be impacted by any of these rule changes, at least for the time being.  Skinny plans do not purport to provide minimum value, but, rather, are designed and marketed to provide “minimum essential coverage.”  By offering a skinny plan to substantially all of its full-time employees (70% in 2015, and 95% in later years), an employer may avoid the Section 4980H subsection (a) penalty, but could still be subject to subsection (b) penalties given that such plans do not provide minimum value coverage.

For more information, see FAQs About Affordable Care Act Implementation (Part XXII).

Also see my SW Benefits Update, “Health Care Reform’s Employer Shared Responsibility Penalties:  A Checklist for Employers.”