IRS Closing “Substandard” Plan Loophole for Obamacare

The IRS announced that it will close a loophole that previously allowed employers to offer lower cost health plans that exclude coverage for physician services, inpatient hospitalization (or both). These plans are classified as “substandard” under the Affordable Care Act of 2010. Such plans currently qualify as “minimum value” plans, which employers are allowed to offer without having to pay a penalty under the new health care law. Health Care Reform

Background: When the Affordable Care Act was passed in 2010, it included a mandate that compels employers with 50 or more full time employees to offer “minimum value” coverage to at least 95% of its full time employees or be subject to a fine. Implementation of the so-called “employer mandate” has seen a couple of delays and is set to go into effect in 2015. Originally, the IRS was going to allow employers to offer non-hospitalization and non-physician services plans under the mandate, but they have determined that such plans do not provide “minimum value” to the insured, and therefore will not qualify as such under the provisions of the Affordable Care Act.

What These Changes Mean for Employees: Employees of businesses that offer non-hospitalization and non-physician services health plans will now be eligible to apply for coverage through a state or federal exchange and receive subsidies (if they qualify). Previously, they would have not been eligible for subsidies because they had the option to obtain a “minimum value” health care plan from their employer.

What These Changes Mean for Employers: In 2015, many employers will still be able to continue offering non-hospitalization and non-physician services plans without penalty if they meet the following requirements:

  1. The enrollment period for their current year health plans began on or before November 4, 2014. And…
  2. The employer used the MV calculator in determining that their plan met the qualifications to be classified as “minimum value.”

Even if employers are exempt from penalty for offering these plans in 2015, employees will still be eligible for subsidies from the exchange. Employers whose plans begin on March 1, 2015 or thereafter will no longer be exempted from penalties for offering non-hospitalization and non-physician services plans.

There are two likely effects these changes will have going forward:

  1. A growing number of small companies will seek to stay under 50 employees.
  2. Larger businesses with over 50 employees will continue reducing many of their employees’ hours to below 30 so they no longer qualify as full time employees.

The ongoing changes by the IRS and the Administration to the implementation of the Affordable Care Act show that compliance with the Act continues to be a ‘moving target.’ To ensure that your business is in full compliance, speak with a small business accounting firm that is up to date on all the changes in the law.

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