Written by Alden J. Bianchi
Under the Affordable Care Act’s rules governing employer shared responsibility—which are codified in Internal Revenue Code § 4980H—where an applicable large employer makes an offer of group health plan coverage that is both “affordable” and provides “minimum value” to substantially all of its full-time employees, the employer is not liable for assessable payments under Code § 4980H.
In an effort to drive down the cost of complying with these rules, certain applicable large employers—principally those in industries in which coverage was not previously offered across-the-board to most, if not all, full-time employees—have sought less expensive ways to offer coverage that is both “affordable” and provides “minimum value.” In an earlier post we described some of the emerging compliance strategies, which included the reference pricing models and “MVP arrangements” that some employers were considering.
Two recent developments, one in the form of a set of FAQs issued by the Departments of Health and Human Services, Labor and Treasury/IRS, and the other a mere (though troubling) rumor, may cause employers to reconsider both these approaches.
Reference pricing refers to a strategy under which a plan will pay only a pre-determined amount for medical services—e.g., Medicare rates plus 20%. In an earlier set of Frequently Asked Questions, the Departments expressed concerns about reference pricing models. They worried that reference pricing approaches might be used as “a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.” For example, while the Act imposes limits on in-network cost-sharing, might amounts required to be paid in excess of a reference price in the case of a non-network provider (e.g., any provider that does not accept the reference price) be an indirect levy of an additional cost-sharing amount? Despite these concerns, the Departments permitted reference pricing models to go forward, while at the same time inviting public comment on whether additional rules were needed.
In a recent FAQ, the Departments revisited the subject of reference pricing in light of public comments, which included the following:
- Plans and issuers should be permitted to limit counting an individual's maximum out-of-pocket ("MOOP”) costs exceeding the reference price towards the maximum out-of-pocket amounts only with respect to certain types of services (such as non-emergency services or routine procedures);
- Plan and health insurance issuers should be required to observe network adequacy and quality standards or procedures where less-than-full credit is given against the MOOP for non-preferred providers;
- Plans should be required to establish an exceptions process in certain circumstances to allow an enrollee's full cost sharing for non-reference based priced providers to count toward the MOOP.
In response, the Departments determined that:
"Pending issuance of future guidance, for purposes of enforcing the [MOOP] requirements . . . the Departments will consider all the facts and circumstances when evaluating whether a plan's reference-based pricing design (or similar network design) that treats providers that accept the reference-based price as the only in-network providers and excludes or limits cost-sharing for services rendered by other providers is using a reasonable method to ensure adequate access to quality providers at the reference price . . ."
The facts and circumstances that the Departments propose to evaluate include the type of service and what rules apply to MOOP determinations in the case of non-network providers. Thus, plans “should have standards to ensure that the network is designed to enable the plan to offer benefits for services from high-quality providers at reduced costs, and does not function as a subterfuge for otherwise prohibited limitations on coverage.” In particular, the Departments express the view that “a reference-based price would not be considered reasonable with respect to emergency services.” Nor may a reference price be applied to a non-grandfathered plan that involves a more restrictive network for emergency services. Plans must also have procedures relating to network adequacy, as well as an exceptions process that ensures access to quality services. The FAQ also imposes disclosure requirements, including the automatic provision of a list of services to which the pricing structure applies and information on the pricing structure exceptions process.
Essentially, an MVP arrangement is a major medical plan that does not cover inpatient hospital services. (We explain the MVP approach in an earlier post). The rumor mill has it that “the IRS does not like these plans, and it is planning to shut them down imminently.” For this purpose, we understand “imminently” means sometime after the 2014 mid-term elections. The logic attributed to “the IRS” is that a properly structured MVP arrangement (i.e., one that is offered on an affordable basis) prevents an otherwise subsidy-eligible employee from turning down an employer’s offer of coverage under an MVP arrangement and getting subsidized coverage under a plan offered by a public exchange or marketplace. This is, of course, accurate. (Curiously, rumor central also claims that there is less concern over so-called “MEC plans,”—that is, plans that cover only preventive services—since an otherwise subsidy-eligible employee can turn down his or her employer’s offer of MEC coverage and get subsidized coverage from a public exchange.) Lastly, it has been reported that there is little sympathy for employers that purchased MVP arrangements since they (the employers that purchased MVP arrangements) should have had the good sense to know that the deal sounded “too good to be true.”
Whether one accepts these rumors as substantially accurate, or whether one treats them as the straw horses that they might well be, we have some concerns:
- Who says?
The Affordable Care Act delegates to the Department of Health and Human Services (HHS), and not the IRS, the job of establishing rules governing minimum value. It is a final HHS rule that establishes the on-line MV calculator as an authoritative source of minimum value determinations. Of course, the Treasury Department and the IRS have jurisdiction over the manner in which the Act’s employer shared responsibility rules are implemented, but that does not appear to include adopting a different definition of minimum value than the one that HHS prescribes. At a minimum, it would seem that HHS would need to change its final regulations (or the manner in which the calculator is coded) to help the IRS out.
- Essential health benefits in the large group and self-funded markets
Employer-sponsored group health plans are not required to offer essential health benefits (which include inpatient hospital benefits) unless they are health plans offered in the small group market. The preamble to the IRS’s own proposed rule in the matter acknowledges as much, saying:
“The proposed regulations do not require employer-sponsored self-insured and insured large group plans to cover every EHB category or conform their plans to an EHB benchmark that applies to qualified health plans.”
The real issue, and one would hope the basis on which the regulators might act in the matter of MVP arrangements, is not whether a plan must cover some particular category of essential health benefits such as inpatient hospital services. Such a test is inapposite. The question ought to be—is a plan that fails to provide some particular category of essential health benefits, such as inpatient hospital services, thereby rendered unable from an actuarial perspective from reaching a 60% minimum value? Inpatient hospital services can be very expensive, to be sure; but they are also far less common than other procedures. Presumably, the continuance tables that underpin the HHS on-line calculator reflect this fact. Because the calculator is a black-box, however, we can’t know that.
- “Too good to be true . . .”
The retort to this is simple and, in our view, compelling: if HHS wanted all minimum value plans to include inpatient hospital services, then why did it give us a check box (thereby making them optional)? Any suggestion that employers have acted in less than good faith is, in our view, specious.
In our previous posts on the subject, we have assumed that if the regulators did not like MVP arrangements, they had (and have) in their formidable regulatory firepower the weapons with which to vaporize them. We have not changed our view. However, promoters have designed and marketed plans relying on and following to the letter an HHS final rule and an HHS-provided on-line calculator, which employers have purchased in an effort to ease their regulatory compliance costs. No employer is required to do anything more than the law requires; and any employer that does risks putting itself at a competitive disadvantage relative to those that do not. We are now about 10 weeks from the date on which the employer shared responsibility rules take effect, and for which the open enrollment period is right around the corner. So while the regulators are free to change the rules, we think the case for transition relief is compelling.