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Loophole in the Minimum Value Test? Not so fast …

Friday November 7th, 2014

Estimated time to read: 1 minute, 15 seconds

We found a Loophole!  That was the cry from certain brokers, TPAs or employers when they investigated two separate pieces of the health care law in 2014.  But as the cautionary warning states, buyer beware!  Sometimes loopholes can turn into slipknots and bind you in a noncompliant way.

  1. Plans that don’t offer hospital care passing the IRS’ minimum value (MV) test.
  2. Section 105 plans that reimburse premiums for individual plans.

It appears there was a glitch in the Department of Health & Human Services (HHS) MV test that allowed plans to pass, even though they didn’t include hospital care.  Maybe folks thought no one would notice.  So plans were sold.  Contracts signed.  Employees enrolled.  The IRS recognizes there is a glitch and fixes the calculator.  In doing so, they make a peace offering for those who are now out of compliance.  Any contract that was committed to prior to the November 3 guidance will be okay for the remainder of the plan year.  This means that as long as the plan meets the affordability test (9.5%), two things occur:  1. The employer will not be subject to an assessable payment for not providing MV coverage ($3,000/12 for each month a FT employee did not receive proper coverage) and 2.  The individuals covered by these plans will still be eligible for a subsidy.

One could say as of March 23, 2010, the debate started as to whether employers could provide a pre-tax vehicle for employees who wanted to purchase individual plans either from the Marketplace or direct from the insurer.  What ensued were opinions, conjecture and informal guidance, until the IRS said it was not allowed.  On November 6, 2014, the DOL made it official (yet again) that individual premiums cannot be reimbursed pre-tax by the employer unless the plans are HIPAA-excepted benefits.

Attention employers!

  1.  If you’ve adopted one of the MV plans in question, please make sure your employees know they are still eligible for a subsidy and ensure the plan is affordable to meet the penalty exception.
  2. If you’ve been advised to adopt a plan to reimburse individual plan premiums pre-tax, correct immediately to avoid any penalties.

As the ACA continues to be reviewed and changed, the challenge to stay in compliance and not get knotted up remains.