back

Notice 2014-69, "Non-Hospital Plans"

On November 4, 2014, the Treasury Department (in conjunction with the Department of Health and Human Services) issued much anticipated guidance, Notice 2014-69 (the "Notice"), regarding the ability of a group health plan that does not provide substantial coverage for inpatient care and/or physician services ("Non-Hospital Plans") to provide minimum value. Under current rules and procedures, a self-insured Non-Hospital Plan can actually satisfy the minimum value standard—as determined either by MV Calculator prepared by HHS or an actuary—if the Non-Hospital Plan provides substantial coverage for the other essential health benefits required to be contemplated by the minimum value rules. Such plans have become quite popular among certain employers that qualify as "applicable large employers" because such a plan that provides minimum value gives employers who offer the coverage to a full-time employee a low cost way to avoid the Code Section 4980H(b) "Tackhammer Tax" if the coverage is also affordable according to 4980H standards. On the other hand, the offer of such coverage to ANY employee (full-time or part-time) would disqualify that employee from a premium subsidy if the coverage was also affordable according to Code Section 36B standards. This apparently created concerns for the IRS and HHS.

Consequently, Treasury and HHS have announced in the Notice that HHS will issue regulations in the near future that will prospectively close the opportunity afforded by the applicable rules and the MV calculator that enabled such plans to satisfy the minimum value standard. The following questions and answers provide an overview of the Notice and what it means to employers who are or are contemplating offering such coverage to their employees.

Nothing contained in this memo is or should be considered as legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This memo is intended for educational and informational purposes only.

To which plans does the Notice apply?

The Notice applies to any group health plan (other than a plan that provides excepted benefits) that does not provide "substantial" coverage for inpatient care and/or physician services. The Notice not only applies to plans that provide no coverage for inpatient care and/or physician services but also plans that provide coverage for inpatient care and physician services that is not "substantial". The Notice does not clarify what is meant by "substantial"; however, we assume that plans that provide coverage for inpatient care and physician services but impose significant visit or service limits on such benefits would also qualify as Non-Hospital Plans and would be impacted as well.

Does the Notice prohibit employers from offering Non-Hospital Plans to employees?

No!!!!! The Notice simply identifies an end date by which such plans will no longer be considered as providing minimum value for purposes of the Code Section 36B and the 4980H rules.

Practice Pointer: Non-Hospital Plans will continue to qualify as "minimum essential coverage" subject to all of the applicable group health plan requirements (e.g. the health insurance reforms). Consequently, employees enrolled in such plans will satisfy the individual mandate and applicable large employers who offer such coverage to at least 95% of their full-time employees (and their dependent children) (70% in 2015 if certain requirements are met) will avoid the 4980H(a) "Sledgehammer" Tax.


By what date will a Non-Hospital Plan cease to provide minimum value for purposes of the 4980H rules?

It depends on where on the path you were on November 4, 2014 and the date that you start the plan.

  • Pre-November 4 Plans: If the employer entered into a binding, written commitment prior to November 4, 2014 to adopt the plan or if the employer had begun the enrollment process prior to November 4, 2014 based on the employer’s reliance on the results of the MV calculator, and the plan year for such plans begins on or before March 1, 2015 ("Pre-November 4 Plan"), the Pre-November 4 Plan will continue to provide minimum value through the end of the plan year in which the final regulations are issued (which is expected to be March 1, 2015).

    Example #1: Employer entered into a binding, written commitment with ABC, Inc. on October 1, 2014 to adopt a Non-Hospital Plan that provides minimum value as determined by the MV calculator. The plan year for the Non-Hospital Plan will begin February 1, 2015. Final regulations are issued on March 1, 2015. The Non-Hospital Plan will provide minimum value through January 31, 2016, which is the last day of the plan year in which the final regulations were issued.

  • November 4 or After Plans: On the other hand, if the employer did not have a binding, written commitment to adopt the plan prior to November 4, did not begin enrollment in such plan before November or does not start the plan on or before March 1, 2015 ("November 4 or After Plan"), then such plan will cease providing minimum value as of the date the final regulations are issued.

    Example #2: Employer entered into a binding, written commitment with ABC, Inc. to adopt a Non-Hospital Plan that provides minimum value as determined by the MV calculator on November 15, 2014. The plan year will begin February 1, 2015. The final regulations are issued on March 1, 2015. The Non-Hospital Plan will cease to provide minimum value on March 1, 2015.

What constitutes a binding, written commitment to adopt the plan?

The Notice does not clarify when an employer has entered into a "binding, written commitment" to adopt the plan. Presumably, an employer has entered into a binding, written commitment to adopt the plan when it has entered into a legal contract with a third party (such as a third party administrator) for which the employer’s failure to adopt the plan would constitute a breach of contract. Whether two parties have entered into a written, binding contract is largely a matter of applicable state law. For example, a written agreement signed by authorized individuals of both parties would likely constitute a "binding, written commitment" contemplated in the Notice. Would an email exchange between an employer and a third party constitute a "binding, written commitment"? Perhaps, but only if the employer agrees in the email exchange to the terms and conditions offered by the third party.

Practice Pointer: Does the employer have to enter into a binding, written commitment before November 4 (regardless of when it is adopted) or does the employer have to enter into a binding written, commitment that it will adopt the plan before November 4? We believe that the employer need only enter into a binding, written commitment prior to November 4.


How are Non-Hospital Plans treated for purposes of qualifying for a premium subsidy or tax credit in the Exchange?

Pending issuance of final regulations, an employee will NOT be required to treat the Non-Hospital Plan as providing minimum value (regardless of whether it is a Pre-November 4 plan or not) for purposes of the Code Section 36B premium subsidy or tax credit—even though such coverage is treated as providing minimum value for purposes of Code Section 4980H.

So what does this mean for an employee and dependents who are eligible for or enrolled in a Non-Hospital Plan? It means that employees and dependents who are currently eligible for but not enrolled in a Non-Hospital Plan would be newly eligible for a premium subsidy or credit with respect to coverage in the Exchange to the extent that they satisfy the household income requirements; therefore, such employees and dependents would be eligible for a special enrollment period in the Exchange. Also, an employee and dependents enrolled in a Non-Hospital plan would be eligible for a special enrollment period in the Exchange to the extent that the employer allows the employee and dependents to terminate coverage (see 45 C.F.R. 155.420(d)(6)).

Practice Pointer: Generally speaking, employees who are enrolled in a Non-Hospital Plan that is offered through a cafeteria plan would be prohibited under the current Code Section 125 regulations from revoking his or her election mid-year to enroll in Exchange coverage solely as a result of the IRS’ determination that such plan did not provide minimum value. However, the IRS recently issued IRS Notice 2014-55, which allows (but does not require) employers to amend their cafeteria plans to allow employees to revoke their election under the plan when they become eligible for a special enrollment period in the Exchange (provided other conditions are satisfied).


Does the employer have any notice requirements?

Employers are prohibited from implying or expressly communicating that an offer of coverage under the Non-Hospital Plan to which this Notice applies (see the practice pointer above under "To which plans does the Notice apply?") will disqualify the employee from receiving a premium subsidy or tax credit. Moreover, if the employer has previously implied or communicated that the offer of the Non-Hospital plan will disqualify the employee from receiving a subsidy or tax credit, the employer must promptly issue a correction.

Practice Pointer: The Notice indicates that simply indicating that the plan provides minimum value implies that the employee and their dependents will be disqualified from receiving a subsidy. Employers should consider whether any SBCs issued for Non-Hospital plans indicate that they provide minimum value and issue corrections if needed.


If the employer also offers the employee the opportunity to enroll in a major medical plan that provides substantial inpatient care and physician services, is affordable and provides minimum value, the employer may expressly communicate that the other plan offering may disqualify the employee and any eligible family members from receiving a premium subsidy or tax credit.

What are the next steps?

The employer’s next step depends on which of the following situations apply:

  • The employer is an applicable large employer and does not have a Pre-November 4 Plan: In this case, the employer should seriously consider whether to go forward with any November 4 and After Plan. Even if the MV calculator indicates that it provides minimum value, the plan will cease to provide minimum value as soon as the final regulations are issued, which the Notice indicates should be no later than March 1, 2015. Thus, if no other coverage is currently offered, the employer will be forced to add additional coverage or implement a new plan in order to avoid excise taxes.

  • The employer is an applicable large employer who also offers another major medical plan with substantial inpatient and physician service care that is both affordable and provides minimum value: In this case, the reasons for considering the Non-Hospital Plan (whether it is a Pre-November 4 Plan or not) before the Notice would appear to still exist. Other than the rather innocuous notice requirements discussed above, the Notice should have little to no effect on the decision to add this benefit to the stable of available health benefit options.

  • The employer is an applicable large employer and has a Pre-November 4 Plan: In this case, the employer has until the end of the plan year in which the final regulations are issued to decide what the next steps are.

  • The employer is NOT an applicable large employer: In this case, the employer is not subject to excise taxes under 4980H; therefore, other than the notice obligations described above, the Notice should have little to no impact on the decision to adopt a Non-Hospital Plan.

  • Even after the arrangement ceases to provide minimum value, Non-Hospital Plans will still qualify as minimum essential coverage, which accomplishes two goals:

    • Applicable large employers who offer a Non-Hospital Plan to at least 95% of its full-time employees (and dependent children) (70% in 2015) can still avoid the 4980H(a) "Sledgehammer" tax.
    • Employees who enroll in a Non-Hospital Plan will satisfy the individual mandate.

This communication is designed to provide a summary of significant developments to our clients. Information presented is based on known provisions. Additional facts and information or future developments may affect the subjects addressed. It is intended to be informational and does not constitute legal advice regarding any specific situation. Plan sponsors should consult and rely on their attorneys for legal advice.