Employer health plans must cover inpatient hospital and physician services

The IRS added a requirement that employer-sponsored health plan benefits must include substantial coverage of inpatient hospital and physician services for the plan to count as providing minimum value. The requirement was issued in proposed regulations on Tuesday (REG-143800-14).

The proposed regulations withdraw and replace former Prop. Regs. Sec. 1.36B-6(a), which provided that, for purposes of determining whether an employee qualifies for the Sec. 36B premium tax credit, an eligible employer-sponsored plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to an employee is at least 60%. New Prop. Regs. Sec. 1.36B-6(a) retains the 60% minimum value requirement and adds the new requirement regarding inpatient hospital and physician services.

The premium tax credit is available to an individual taxpayer only if the individual has a coverage month, which will occur only if the individual enrolls in a qualified health plan through a health insurance exchange, is not eligible for minimum essential coverage (including coverage under an eligible employer-sponsored plan) other than coverage in the individual market, and pays premiums for the qualified health plan. An individual is not considered eligible for coverage under an eligible employer-sponsored plan unless the coverage is affordable and provides minimum value or unless the individual enrolls in the plan.

The IRS explained that the reason for the change was that allowing plans that fail to provide substantial coverage of inpatient hospital or physician services to be treated as providing minimum value would adversely affect employees (particularly those with significant health problems) who may find this coverage insufficient, by denying them the premium tax credit for coverage they purchased through an exchange, while at the same time allowing the employer to avoid the Sec. 4980H employer shared-responsibility payment. Employer-sponsored health plans that omit critical benefits that individuals in poor health use disproportionately would likely enroll far fewer of these individuals. This would drive down employer costs at the expense of those in poor health who are discouraged from enrolling.

The IRS is requesting comments on how to determine whether a plan provides “substantial coverage of inpatient hospitalization and physician services” and any other issues by Nov. 2.

The new rule would apply to plan years beginning after Nov. 3, 2014. Under a transition rule, the new definition of minimum value will not apply before the end of a plan year beginning no later than March 1, 2015, provided that the employer entered into a binding written commitment to adopt, or had begun enrolling employees in, a plan with noncompliant plan terms before Nov. 4, 2014, the date the IRS notified taxpayers of its intention to change this definition of minimum value. This transition relief does not apply to an employer that would have been subject to the Sec. 4980H penalty, regardless of the change in definition of minimum value.

—Sally P. Schreiber (sschreiber@aicpa.org) is a JofA senior editor.