Definition of Minimum Value

By Tom Younger, J. Smith Lanier

We reported in a Nov. 4, 2014 Alert that IRS had issued Notice 2014-69 intended to end what we have affectionately referred to as “scrawny cow” plans. Some marketers discovered a loophole in the HHS actuarial value calculator. A plan design without hospitalization and physician services could pass the 60 percent minimum value test. Such a plan was a fraction of the cost of a normal major medical plan, as you might expect, and was promoted as a means to satisfy the employer mandate of Code §4980H(a) at less cost. This notice warned that employers would be open to the $3,000 §4980H(b) penalty for failure to offer a minimum value plan subject to a transition rule, described below. In said notice, the IRS stated:

“A plan that fails to provide substantial coverage for these services would fail to offer fundamental benefits that are nearly universally covered, and historically have been an integral to coverage under typical employer-sponsored group plans.”

The transition rule was for employers that had instituted such arrangements. If the employer was under contract for such a plan as of Nov. 3, 2014, they had until the end of that contract year to take corrective action without being assessed the §4980H(b) $3,000 penalty for each employee who opted out and secured premium assistance from the Exchange.

Although final regulations are in place on minimum value, IRS has just issued new proposed regulations to codify the definition of minimum value to state that minimum value is achieved when (i) the plan has an actuarial value of at least 60 percent and (ii) provides substantial coverage for in-hospital services and physician services. In the preamble to this proposed reg, IRS is soliciting comment on how it should define and measure “substantial.”

There is additional transition relief. The proposed reg proposes to apply this new definition to plan years beginning after Nov. 3, 2014. However, for purposes of the penalty, the changes to the definition of minimum value would not apply before the end of the plan year beginning no later than March 1, 2015; again provided the employer was under contract by Nov. 3, 2014.


Not everyone is an expert on health care reform. But the folks at J. Smith Lanier, one of our endorsed services providers, are.  For this reason they created a publication called the Health Care Reform Alert. J. Smith Lanier has been providing these to its clients since 2010 when the bill was passed and now offers it to the members of ABA. It is J. Smith Lanier’s intention in the alerts to take the many pages generated by the Centers for Medicare and Medicaid Services, U.S. Department of Labor or Treasury and filter them down into terms that all can understand. For more information on how J. Smith Lanier can help your bank, contact Tom Younger at (256) 890-9027.