IRS Issues Guidance Proposing Employer Health Coverage Valuation Methods

The IRS recently issued Notice 2012-31, which proposes three different methods by which sponsors of self-insured health plans may value the coverage provided under their plans.  Under the Patient Protection and Affordable Care Act (“PPACA”) employers that provide affordable “minimum essential health coverage” will not be subject to the PPACA’s employer penalties.  Minimum essential health coverage is defined as coverage that provides “minimum value” by covering at least 60% of the total allowed costs of benefits provided under the plan.  In Notice 2012-31, the IRS proposes the following three valuation methods for purposes of determining minimum value: (1) use of a  minimum value (“MV”) calculator developed by HHS, which allows input of plan coverage and limits for four “core” categories of benefits  – physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services; (2) use of a safe-harbor checklist for plans that provide benefits in all of the four categories described above; and (3) actuarial certification for plans with “nonstandard” features, such as visit limits on any of the core benefits.  Under the IRS proposal, an employer could also take into account any of its current-year contributions into an employee’s health savings account or health reimbursement arrangement.  The IRS has requested that comments on the proposed valuation methods be submitted by June 11, 2012.