Proposed Regs Address Whether Health Plans Provide Minimum Value

ACTION: Supplemental notice of proposed rulemaking.

SUMMARY: This document withdraws, in part, a notice of proposed rulemaking published on May 3, 2013, relating to the health insurance premium tax credit enacted by the Affordable Care Act (including guidance on determining whether health coverage under an eligible employer-sponsored plan provides minimum value) and replaces the withdrawn portion with new proposed regulations providing guidance on determining whether health coverage under an eligible employer-sponsored plan provides minimum value. The proposed regulations affect participants in eligible employer-sponsored health plans and employers that sponsor these plans.

DATES: Written (including electronic) comments and requests for a public hearing must be received by November 2, 2015.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-143800-14), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-143800-14), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-143800-14).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Andrew S. Braden, (202) 317-4725; concerning the submission of comments and/or requests for a public hearing, Oluwafunmilayo Taylor, (202) 317-5179 (not toll-free calls).

SUPPLEMENTARY INFORMATION:

Background

This document withdraws, in part, a notice of proposed rulemaking (REG-125398-12), which was published in the Federal Register on May 3, 2013 (78 FR 25909) and replaces the portion withdrawn with new proposed regulations. The 2013 proposed regulations added § 1.36B-6 of the Income Tax Regulations, providing rules for determining the minimum value of eligible employer-sponsored plans for purposes of the premium tax credit under section 36B of the Internal Revenue Code (Code). Notice 2014-69 (2014-48 IRB 903) advised taxpayers that the Department of Health and Human Service (HHS) and the Treasury Department and the IRS intended to propose regulations providing that plans that fail to provide substantial coverage for inpatient hospitalization or physician services do not provide minimum value. Accordingly, the proposed regulations under § 1.36B-6(a) and (g) are withdrawn.

Beginning in 2014, under the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)), and the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the Affordable Care Act), eligible individuals who enroll in, or whose family member enrolls in, coverage under a qualified health plan through an Affordable Insurance Exchange (Exchange), also known as a Health Insurance Marketplace, may receive a premium tax credit under section 36B of the Code.

Premium Tax Credit

Section 36B allows a refundable premium tax credit, which subsidizes the cost of health insurance coverage enrolled in through an Exchange. A taxpayer may claim the premium tax credit on the taxpayer's tax return only if the taxpayer or a member of the taxpayer's tax family (the persons for whom the taxpayer claims a personal exemption deduction on the taxpayer's tax return, generally the taxpayer, spouse, and dependents) has a coverage month. An individual has a coverage month only if the individual enrolls in a qualified health plan through an Exchange, is not eligible for minimum essential coverage other than coverage in the individual market, and premiums for the qualified health plan are paid. Section 36B(b) and (c)(2)(B). Minimum essential coverage includes coverage under an eligible employer-sponsored plan. See section 5000A(f)(1)(B). However, for purposes of the premium tax credit, an individual is not 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. Section 36B(c)(2)(C). Final regulations under section 36B (TD 9590) were published on May 23, 2012 (77 FR 30377).

Employer Shared Responsibility Provision

Section 4980H(b) imposes an assessable payment on applicable large employers (as defined in section 4980H(c)(2)) that offer minimum essential coverage under an eligible employer-sponsored plan that is not affordable or does not provide minimum value for one or more full-time employees who receive a premium tax credit subsidy. Final regulations under section 4980H (TD 9655) were published on February 12, 2014 (79 FR 8544).

Minimum Value

Under section 36B(c)(2)(C)(ii), an eligible employer-sponsored plan provides minimum value only if the plan's share of the total allowed costs of benefits provided under the plan is at least 60 percent. Section 1302(d)(2)(C) of the Affordable Care Act provides that, in determining the percentage of the total allowed costs of benefits provided under a group health plan, the regulations promulgated by HHS under section 1302(d)(2), dealing with actuarial value, apply.

HHS published final regulations under section 1302(d)(2) on February 25, 2013 (78 FR 12834). HHS regulations at 45 CFR 156.20, which apply to the actuarial value of plans required to provide coverage of all essential health benefits, define the percentage of the total allowed costs of benefits provided under a group health plan as (1) the anticipated covered medical spending for essential health benefits coverage (as defined in 45 CFR 156.110(a)) paid by a health plan for a standard population, computed in accordance with the plan's cost-sharing, divided by (2) the total anticipated allowed charges for essential health benefit coverage provided to a standard population.

Under section 1302(b) of the Affordable Care Act, only individual market and insured small group market health plans are required to cover the essential health benefits. Minimum value, however, applies to all eligible employer-sponsored plans, including self-insured plans and insured plans in the large group market. Accordingly, HHS regulations at 45 CFR 156.145(b)(2) and (c) apply the actuarial value definition in the context of minimum value by (1) defining the standard population as the population covered by typical self-insured group health plans, and (2) taking into account the benefits a plan provides that are included in any one benchmark plan a state uses to specify the benefits included in essential health benefits.

Notice 2014-69, advising taxpayers of the intent to propose regulations providing that plans that fail to provide substantial coverage for inpatient hospitalization or physician services do not provide minimum value, was released on November 4, 2014. Notice 2014-69 also advised that it was anticipated that, for purposes of section 4980H liability, the final regulations would not apply to certain plans (as described later in this preamble) before the end of a plan year beginning no later than March 1, 2015. However, an offer of coverage under these plans to an employee does not preclude the employee from obtaining a premium tax credit, if otherwise eligible.

As announced by Notice 2014-69, HHS published proposed regulations on November 26, 2014 (79 FR 70674, 70757), and final regulations on February 27, 2015 (80 FR 10872), amending 45 CFR 156.145(a). The HHS regulations provide that an eligible employer-sponsored plan provides minimum value only if, in addition to covering at least 60 percent of the total allowed costs of benefits provided under the plan, the plan benefits include substantial coverage of inpatient hospitalization and physician services. Consistent with Notice 2014-69, the HHS regulations indicate that the changes to the minimum value regulations do not apply before the end of the plan year beginning no later than March 1, 2015 to a plan that fails to provide substantial coverage for inpatient hospitalization services or for physician services (or both), provided that the employer had entered into a binding written commitment to adopt, or had begun enrolling employees in, the plan before November 4, 2014. For this purpose, the plan year is the plan year in effect under the terms of the plan on November 3, 2014. Also for this purpose, a binding written commitment exists when an employer is contractually required to pay for an arrangement, and a plan begins enrolling employees when it begins accepting employee elections to participate in the plan. See 80 FR 10828.

Explanation of Provisions

The preamble to the HHS regulations acknowledges that self-insured and large group market group health plans are not required to cover the essential health benefits, but notes that a health plan that does not provide substantial coverage for inpatient hospitalization and physician services does not meet a universally accepted minimum standard of value expected from and inherent in any arrangement that can reasonably be called a health plan and that is intended to provide the primary health coverage for employees. The preamble concludes that it is evident in the structure of and policy underlying the Affordable Care Act that the minimum value standard may be interpreted to require that employer-sponsored plans cover critical benefits. See 80 FR 10827-10828.

As the preamble notes, 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 risks) who may find this coverage insufficient, by denying them access to a premium tax credit for individual coverage purchased through an Exchange, while at the same time avoiding the employer shared responsibility payment under section 4980H. Plans that omit critical benefits used disproportionately by individuals in poor health would likely enroll far fewer of these individuals, effectively driving down employer costs at the expense of those who, because of their individual health status, are discouraged from enrolling. See 80 FR 10827-10829.

Accordingly, these proposed regulations incorporate the substance of the rule in the HHS regulations. They provide that 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 percent and the plan provides substantial coverage of inpatient hospital and physician services. Comments are requested on rules for determining whether a plan provides "substantial coverage" of inpatient hospital and physician services.

Effective/Applicability Date and Transition Relief

These regulations are proposed to apply for plan years beginning after November 3, 2014. However, for purposes of section 4980H(b), the changes to the minimum value regulations (in § 1.36B-6(a)(2) of these proposed regulations) do not apply before the end of the plan year beginning no later than March 1, 2015 to a plan that fails to provide substantial coverage for in-patient hospitalization services or for physician services (or both), provided that the employer had entered into a binding written commitment to adopt the noncompliant plan terms, or had begun enrolling employees in the plan with noncompliant plan terms, before November 4, 2014. For this purpose, the plan year is the plan year in effect under the terms of the plan on November 3, 2014. Also for this purpose, a binding written commitment exists when an employer is contractually required to pay for an arrangement, and a plan begins enrolling employees when it begins accepting employee elections to participate in the plan. The relief provided in this section does not apply to an applicable large employer that would have been liable for a payment under section 4980H without regard to § 1.36B-6(a)(2) of these proposed regulations.

An offer of coverage under an eligible employer-sponsored plan that does not comply with § 1.36B-6(a)(2) of these proposed regulations does not preclude an employee from obtaining a premium tax credit under section 36B, if otherwise eligible.

Special Analyses

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Requests for Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the "Addresses" heading. The Treasury Department and the IRS request comments on all aspects of the proposed rules. All comments will be available at www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person who timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register.

Drafting Information

The principal author of these regulations is Andrew Braden of the Office of the Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the Treasury Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments

Accordingly, 26 CFR part 1 as proposed to be amended on May 3, 2013 (78 FR 25909), is proposed to be further amended as follows:

PART 1 -- INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.36B-6, as proposed to be added May 3, 2013 (78 FR 25909), is amended by revising paragraphs (a) and (g) to read as follows:

§ 1.36B-6 Minimum value.

(a) In general. An eligible employer-sponsored plan provides minimum value (MV) only if --

(1) The plan's share of the total allowed costs of benefits provided to an employee (the MV percentage) is at least 60 percent; and

(2) The plan provides substantial coverage of inpatient hospital services and physician services.

* * * * *

(g) Effective/applicability date -- (1) In general. Except as provided in paragraph (g)(2) of this section, this section applies for taxable years ending after December 31, 2013.

(2) Exception. Paragraph (a)(2) of this section applies for plan years beginning after November 3, 2014.