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PPACA: IRS Offers 3 Plan Valuation Methods

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If employers have to determine the actuarial value of their health coverage for the purposes of complying with the Patient Protection and Affordable Care Act of 2010 (PPACA), what approach, or approaches, should the employers use to calculate the actuarial value?

Officials at the Internal Revenue Service (IRS), an arm of the U.S. Treasury Department, are asking for comments on 3 different plan valuation proposals in IRS Notice 2012-31.

Opponents of PPACA are fighting the law both in court and in Congress.

If PPACA takes effect on schedule and works as expected, employers classified as “large” will have to provide workers with a minimum level of health coverage starting in 2014 or else pay a penalty.

Workers found to have no group coverage, or inadequate coverage, are supposed to be able to use individual income tax credits to buy coverage through a system of health insurance exchanges, or Web-based insurance supermarkets.

To meet the “minimum essential coverage” standard, an employer must provide an eligible employee with a plan set up in such a way that “the plan’s share of the total allowed costs of benefits provided under the plan is” equal to or greater than 60% of the total allowed costs.

The IRS is getting ready to issue proposed regulations on determining minimum value, officials say in Notice 2012-31.

HHS officials talked about actuarial value calculation methods in a notice released in February.

In the IRS notice, officials describe 3 approaches that could be used to determine whether an employer-sponsored plan provides minimum value.

  • The U.S. Department of Health and Human Services (HHS) and the Treasury Department could provide an actuarial value calculator or a minimum value calculator. The minimum value calculator would be designed for large self-insured employers, and it would draw on the kinds of claims data that typical self-insured employer plans might produce.
  • The government could provide a set of checklist-based safe harbors tailored to fit various plan designs. An employer could use the checklists without performing any calculations or hiring an actuary.
  • The government could let plans with nonstandard features hire certified actuaries to certify that the plans provide the required minimum value.

“The actuarial value of a health plan is a measure of the percentage of health care costs, on average, that the plan is expected to cover,” officials say in the notice.

HHS reported in the fall that, when it applied methods similar to those described in the notice, it found that about 98% of workers in employer-sponsored group health plans are in plans with an actuarial value of at least 60%, officials say.

HHS analysts found that expenditures on 4 categories of care – physician and mid-level practitioner care; hospital and emergency room services; pharmacy benefits; and laboratory and imaging services — accounted for most of a plan’s actuarial value.

The HHS analysts said coverage of services such as rehabilitative services, durable medical equipment, acupuncture services, chiropractic services and home health services has little effect on actuarial value.

“We seek input on whether other analyses using different data or assumptions produce similar or different results,” IRS officials say.

Officials also are asking for comments on what benefits should be included in an actuarial value or minimum value calculator, and how a calculator could reflect the value of benefits such as wellness benefits; plan features that could require adjustments to actuarial value or minimum value calculator results; terms that should be included in safe harbor checklists; the types of plans that could be covered by safe harbor checklists; and standards for plans that want to get independent actuarial value certification.

Comments are due June 11.