IRS Changes Position, Will Require Employer Plans to Cover Certain "Essential Health Benefits"

November 07, 2014

In response to pressure from consumer advocates and other organizations, the Internal Revenue Service announced on Tuesday it will publish a proposed rule to require large employers to offer certain essential health care benefits (EHB) to their employees, effectively reversing its previous position that the Affordable Care Act does not require large employer plans to offer all of the EHBs or even cover each of the ten statutory EHB categories.  The new IRS notice says the new rules will only mandate large employers to cover inpatient hospital and physician services, but not any of the other essential health benefit categories.  The IRS notice also says large employer-sponsored health plans that fail to provide substantial coverage for inpatient hospitalization and physician services do not meet the ACA's minimum value standard.  Although employers offering such plans will meet the ACA's requirement to offer "minimum essential coverage" and avoid the $2,000 per full-time employee penalty, they will be subject to the ACA's $3,000 penalty for each full-time employee that receives a premium subsidy in the public exchanges.  For employers that had already enrolled or begun to enroll employees as of November 3, 2014 in a plan that does not offer inpatient hospitalization and physician services, the IRS will forgive the employer mandate penalties through the plan year that begins on or before March 1, 2015.  However, employers that are offering these types of plans must correct any prior disclosures that may have stated or implied that the offer of such coverage precluded an employee from obtaining a subsidy on the exchanges.  The guidance raises several questions for the new Congress and the administration to consider, including:

  • If large employers are not required by the ACA to cover every EHB category or conform their plans to any particular state EHB benchmark plan, why are they required to cover hospitalization and physician services under the soon to be proposed rules?

  • Can employer plans offer inpatient hospitalization services, physician services and preventive care services, but not laboratory services, prescription drug coverage, or emergency services?

  • If individuals can purchase catastrophic coverage on the public exchanges, why can't large employers offer similar programs?

  • Will employers with plans that do not provide inpatient hospitalization and physician services be able to meet the ACA's minimum value standard under one of HHS's minimum value (MV) safe harbors but not the MV calculator?

  • What other health care benefits will the IRS and HHS require large employers to cover next?