New HHS Rules for 2016 Tighten "Minimum Value" Standard
An apparently unintended loophole in the Affordable Care Act (ACA) has been closed. Under previous rules, large employers (as defined under the act) would have been able to satisfy the ACA’s “minimum value” test for health care coverage by offering streamlined plans that didn’t cover inpatient hospital visits. “Final Notice of Benefit and Payment Parameters for 2016,” issued by the Department of Health and Human Services (HHS), has announced that this is no longer allowed, though employers that had signed contracts for 2015 plans by Nov. 4, 2014, are permitted to keep those plans in place this year.
Make no mistake, the action is significant — even for employers that didn’t intend to exclude inpatient coverage in their health plans. This is because, to some extent, it calls into question approved or proposed methods that large employers might use to determine whether their plans satisfy the minimum value standard.
Required hospitalization benefits
Small-market and public Health Insurance Marketplace individual plans are required to cover the 10 “essential health benefits,” which include hospitalization coverage. In contrast, the minimum standard for large employer plans is to cover at least 60% of the “total allowed costs of benefits provided under the plan.”
“In order to meet minimum value standards, a plan must provide a benefit package that reflects benefits historically provided under ‘major medical’ employer coverage,” the HHS announcement stated. “Specifically,” it concluded, “to satisfy the minimum value requirement, coverage must include substantial coverage of both inpatient hospital services and physician services.”
The now-banned plan design did pass muster using the official, downloadable “MV calculator” created by the HHS and IRS to allow employers to determine their plan’s actuarial value. Inpatient hospital services are an input variable in the calculator. A zero value entry could be offset by more generous benefits in other areas, such as outpatient services, enabling the design to meet the 60% minimum value test.
3 safe harbors
Remaining allowable paths to ascertaining minimum value compliance include certification by an actuary and adopting a safe harbor design that includes all of the variables (including inpatient hospital services) on the MV calculator’s list of inputs.
In 2013, the IRS published proposed regulations that, among other things, described safe harbors from the minimum value requirement for certain plan features. Those proposed regulations, which have yet to be finalized, presumably remain more authoritative today than the MV calculator. Here’s a list of three safe harbor designs in those proposed rules:
- A plan with a $3,500 integrated medical and drug deductible, 80% plan cost-sharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing.
- A plan with a $4,500 integrated medical and drug deductible, 70% plan cost-sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to a Health Savings Account.
- A plan with a $3,500 medical deductible and a $0 drug deductible, 60% plan medical expense cost-sharing and 75% plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug copays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75% coinsurance for specialty drugs.
Disclosure rule and other highlights
The HHS’s “Final Notice of Benefit and Payment Parameters for 2016” includes a new disclosure requirement for small and individual health plans. Specifically:
Issuers seeking rate increases of 10% or more (or above a state-specific threshold) for non-grandfathered coverage … are required to publicly disclose the proposed increases and the justification for them, and the increases are reviewed by state or federal regulators to determine whether they are unreasonable.
From there, the HHS goes into much more detail on health care coverage requirements of which employers and plan participants should be aware. Important highlights include:
Premium adjustment percentage index. The 2016 maximum annual limitation on cost sharing will be $6,850 for self-only coverage and $13,700 for other than self-only coverage. An 8.1% required contribution percentage will be in place for 2016.
Reduced maximum annual limitation on cost sharing. For individuals with household incomes of 100% to 200% of the federal poverty level, the 2016 reduced maximum annual limitation on cost sharing for self-only coverage will be $2,250. For individuals with incomes of 200% to 250% of the federal poverty level, the reduced maximum annual limitation on cost sharing for self-only coverage will be $5,450.
Formulary drug list. A plan must publish an up-to-date, accurate and complete list of all covered drugs on its formulary drug list. Published information needs to describe any tiering structure used and disclose any restrictions on the manner in which a drug can be obtained.
Benefits discrimination. Existing rules provide that “an issuer does not provide essential health benefits if its benefit design, or the implementation of its benefit design, discriminates based on an individual’s age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions.” Practices that may be considered discriminatory include: 1) restricting services based on age when the service may be appropriate for all ages, and 2) placing most or all drugs for a specific condition on a high cost-sharing tier.
Revised essential health benefits benchmark selection. States may select new benchmark plans for 2017, based on plans available in 2014.
These HHS regulations, which are primarily directed at insurers, are notably complex in nature. Nonetheless, they have broad implications for employers that sponsor group health plans. Specifically, the HHS regs may foreshadow more rules to come — including, for instance, guidance on discriminatory benefit designs. Work with your benefits advisor to clarify whether and how the rules may apply to your organization’s coverage.