Internal Revenue Service (IRS) ideas about health plan benefits valuation could give self-insured plans some room to maneuver, but probably not enough room for employers to use limited-benefit plans to meet the new federal coverage standards.
Ed Fensholt, a compliance services lawyers at Lockton Benefits Group, a unit of Lockton Companies L.L.C., Kansas City, Mo., has written about the IRS benefits valuation proposal in a compliance alert.
Fensholt was responding to plan valuation guidance the IRS issued in April.
The IRS released the guidance, Notice 2012-31, to let employers, labor groups, benefits advisors and others know how it is thinking about implementing a portion of the minimum coverage rules in the Patient Protection and Affordable Care Act of 2010 (PPACA).
Opponents of PPACA are fighting the law in court and in Congress. If PPACA takes effect on schedule and works as expected, employers with the equivalent of more than 50 full-time employees will have to provide workers with a minimum level of health coverage starting in 2014 or else pay a penalty.
An employer might have to pay a penalty of $3,000 if the IRS finds it has failed to offer a worker affordable coverage that meets minimum value standards.
To meet the minimum value standards, the coverage offered must pay 60% of the "total allowed costs" under the plan.
Benefits specialists are wondering how the the government will define what has to go into the package of "total allowed costs" at a self-insured plan, Fensholt says.
"We've known since the reform law was passed that 'minimum value' aka 'qualifying coverage' was not going to be very robust," Fensholt says.
Insurers are gearing up to sell insured plans to individuals and small groups through a new exchange system, or system of Web-based health insurance supermarkets. The plans sold there are supposed to cover 60%, 70%, 80% or 90% of the expected costs associated with an "essential health benefits" package, Fensholt says.
But employer-sponsored coverage need not cover the all "essential health benefits," and, in most cases, self-insured coverage is still not subject to state coverage mandates, Fensholt says.
Some had hoped that the IRS might let an employer base the "total allowed costs" on the costs for its own plan, rather than an outside benchmark plan, Fensholt says.
In that scenario, he says, an employer might be able to minimize total allowed costs by deciding, for example, to cover only physician office visits, not hospital care.
In the new IRS notice, officials seem to indicate that "minimum value" will be based on the costs at a standard benchmark plan, Fensholt says.
"It doesn't appear possible, for example, for a plan that only covers physician office visits to demonstrate 'minimum value, even if the plan is designed to pay at least 60% of expected office visit expenses," Fensholt says. "The plan will need to be more robust than that."
But the IRS does seem to be prepared to let an employer take credit for health savings account contributions and health reimbursement arrangement benefits, and the IRS seems to be open to letting an employer use an actuarial certification process to show whether a plan that imposes quantitative limits on various types of care or other non-standard features still meets the federal minimum value requirements, Fensholt says.
"Note, however, that other rules under the health reform law make survival difficult, after 2013, for HRAs that are not integrated with major medical coverage," Fensholt says.