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Healthcare Plans Lacking Hospital Coverage Do Not Meet Employer Mandate Requirements. (Parker Tax Publishing November 12, 2014)

The IRS has determined that plans lacking coverage for in-patient hospitalization services or for physician services do not meet the Affordable Care Act's minimum value (MV) requirement; large employers adopting such a plan may be exposed to penalties under the healthcare law's employer mandate regardless of whether the plan passes muster with IRS's online MV Calculator. Notice 2014-69 (11/04/14).

In conjunction with the Department of Health and Human Services (HHS), the IRS has concluded that certain group health plans that do not provide coverage for in-patient hospitalization services or for physician services (Non-Hospital/Non-Physician Services Plans) do not meet the minimum value requirements under Code Sec. 36B. According to the IRS, such plans have been designed by their promoters to garner favorable determinations from the online MV calculator even though the plans do not provide minimum value as envisioned under Code Sec. 36B. A plan is considered to provide minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.

The IRS states in Notice 2014-69 that Non-Hospital/Non-Physician Services Plans will not be considered as meeting the Code Sec. 36B minimum value requirement, even if the MV calculator indicates otherwise. Large employers (generally those with 50 or more employees) adopting such plans may be subject to penalties under Code Sec. 4980H.

OBSERVATION: Penalties for employers offering coverage that fails the MV requirement are assessed under Code Sec. 4980H(b). Such penalties can be as high as $3,000 per year ($250 per month) for each employee who is offered coverage under an employer-sponsored healthcare plan and instead purchases health insurance on an exchange and qualifies for a Code Sec. 36B premium assistance tax credit. Generally, an employee who is eligible to enroll in an employer-sponsored plan that meets the MV requirement will not qualify for a premium assistance tax credit.

The IRS has indicated that it will soon propose regulations implementing the provisions discussed in Notice 2014-69, with the intention of finalizing such regulations in 2015. For employers that, based on reliance on the MV Calculator, have entered into a binding written commitment to adopt, or have begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan before November 4, 2014 (a Pre-November 4, 2014 Plan), the IRS anticipates that the final regulations will not apply until after the end of the plan year that begins no later than March 1, 2015.

Pending issuance of final regulations, employees will not be required to treat a Non-Hospital/Non-Physician Services Plan as providing minimum value for purposes of an employee's eligibility for a premium assistance tax credit under Code Sec. 36B, regardless of whether the plan is a Pre-November 4, 2014 Plan.

An employer that offers a Non-Hospital/Non-Physician Services Plan (including a Pre-November 4, 2014 Plan) to an employee (1) is prohibited from stating or implying in any disclosure that the offer of coverage under the Non- Hospital/Non-Physician Services Plan precludes an employee from obtaining a premium assistance tax credit, if otherwise eligible, and (2) must timely correct any prior disclosures that stated or implied that the offer of the Non-Hospital/Non-Physician Services Plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium assistance tax credit.

For a discussion of the large employer healthcare mandate and related penalties, see Parker Tax ¶191,100. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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