n-12-31.pdf

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Minimum Value of an Employer-Sponsored Health Plan

Notice 2012-31

I. PURPOSE AND OVERVIEW

This notice describes and requests comments on several possible approaches to
determining whether health coverage under an eligible employer-sponsored plan, as
defined in § 5000A of the Internal Revenue Code (“employer-sponsored plan”), provides
minimum value within the meaning of § 36B(c)(2)(C)(ii). Beginning in 2014, eligible
individuals who purchase coverage under a qualified health plan through an Affordable
Insurance Exchange may receive a premium tax credit under § 36B unless they are
eligible for other minimum essential coverage, including coverage under an employer-
sponsored plan that is affordable to the employee and provides minimum value. Under
§ 36B(c)(2)(C)(ii), a plan fails to provide minimum value if “the plan’s share of the total
allowed costs of benefits provided under the plan is less than 60 percent of such costs.”
If the coverage offered by the employer fails to provide minimum value, an employee
may be eligible to receive a premium tax credit. An applicable large employer (as
defined in § 4980H(c)(2)) may be liable for an assessable payment under § 4980H if
any full-time employee receives a premium tax credit.
The Treasury Department and the Internal Revenue Service intend to issue
proposed regulations on determining minimum value and are considering incorporating
the approach described in this notice. As described below, under anticipated future
guidance, an employer-sponsored plan would be able to use one of several alternative
approaches to ascertain that the plan provides minimum value. Specifically, this notice
seeks comment on the following three potential approaches that could be used to
determine whether an employer-sponsored plan provides minimum value:

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• The actuarial value calculator (AV calculator), referred to below, or a minimum
value calculator (MV calculator) to be made available by the Department of
Health and Human Services (HHS) and the Treasury Department. In either case,
the calculator would permit an employer-sponsored plan to enter information
about the plan’s benefits, coverage of services, and cost-sharing terms to
determine whether the plan provides minimum value. The data underlying the
MV calculator (which would be designed for use by employer-sponsored self-
insured plans and insured large group plans) are expected to be claims data
reflecting typical self-insured employer plans.
• An array of design-based safe harbors in the form of checklists that would
provide a simple, straightforward way to ascertain that employer-sponsored plans
provide minimum value without the need to perform any calculations or obtain the
assistance of an actuary.
• For plans with nonstandard features that preclude the use of the AV calculator or
the MV calculator without adjustments, an appropriate certification by a certified
actuary, in accordance with prescribed continuance tables, recognized actuarial
standards, and other conditions that may be prescribed in administrative
guidance, that the plan provides minimum value.
Section VI of this notice describes these potential approaches in greater detail.
Under the statute, certain of the rules for determining whether an employer-
sponsored plan provides minimum value are to be based on forthcoming regulations to
be issued by HHS that will specify the methods for determining the actuarial value of a
qualified health plan (QHP) offered through an Affordable Insurance Exchange and non-

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grandfathered plans in the individual and small group markets. On February 24, 2012,
HHS issued the “Actuarial Value and Cost-Sharing Bulletin” (HHS actuarial value
bulletin) describing the assumptions and methodology that HHS anticipates will govern
the calculation of actuarial value.
1
(See
http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.) This notice
describes how guidance issued by HHS on the determination of actuarial value is
expected to be applied in determining minimum value. This notice also outlines ways in
which the determination of minimum value is expected to differ from the determination
of the actuarial value of QHPs in order to reflect differences between QHPs and
employer-sponsored plans, such as differences in their levels of standardization and the
populations covered.
Employer-sponsored self-insured and insured large group plans are not required
to conform their plans to any of the essential health benefit (EHB) benchmarks that HHS
intends to propose to apply to QHPs.
2
These employer-sponsored plans need not offer
all of the EHBs or even cover each of the ten statutory EHB categories.
This notice provides information regarding the actuarial value of existing
employer-sponsored plans (Section II) and the statutory background of the premium tax
credit and the minimum value provision (Section III). The notice then describes, by way
of background, the intended methodology laid out in the HHS actuarial value bulletin for

1
The actuarial value rules under § 1302(d) and the essential health benefit provision under § 1302(b)
apply to QHPs offered on an Affordable Insurance Exchange and also to non-grandfathered plans in the
individual and small group insurance market. See § 2707(a) of the Public Health Service Act, as added
by § 1201 of the Affordable Care Act, which provides that non-grandfathered plans in the individual and
small group insurance markets must cover the “essential health benefits package,” as defined in §
1302(a) of the Affordable Care Act.

2 The EHB benchmarks that HHS intends to propose also apply to non-grandfathered plans in the
individual and small group insurance markets.

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determining the actuarial value of a QHP (Section IV) and explains the assumptions
expected to be used to determine whether an employer-sponsored plan meets the
minimum value threshold (Section V). The notice describes the options that are being
considered for determining whether an employer-sponsored plan has an actuarial value
of at least 60 percent and therefore provides minimum value (Section VI). Finally, the
notice also invites public comments (Section VII).
II. ACTUARIAL VALUE OF EXISTING EMPLOYER-SPONSORED PLANS
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. A report issued last fall by HHS
found that approximately 98 percent of individuals currently covered by employer-
sponsored plans are enrolled in plans that have an actuarial value of at least 60 percent
using methods and assumptions similar to those described in this notice for determining
minimum value. (See Actuarial Value and Employer-Sponsored Insurance, ASPE
Research Brief, U.S. Department of Health and Human Services (November 2011)
http://aspe.hhs.gov/health/reports/2011/AV-ESI/rb.shtml
.) The HHS report also
concludes that four core categories of benefits and services are the greatest
contributors to a health plan’s actuarial value: physician and mid-level practitioner care;
hospital and emergency room services; pharmacy benefits; and laboratory and imaging
services. Because they account for only a very small portion of overall medical
expenditures, benefits and services beyond these four core categories of benefits that
are covered by a plan generally have only a limited impact on the plan’s actuarial value.
For example, a plan that does not include coverage for rehabilitative services, durable
medical equipment, acupuncture and chiropractic services, and home health services

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may have an actuarial value that is only 5 percent less than a plan that includes
coverage for these services. (See ASPE Research Brief.) We seek input on whether
other analyses using different data or assumptions produce similar or different results.
III. STATUTORY BACKGROUND
Section 36B was added by § 1401 of the Patient Protection and Affordable Care
Act, Public Law 111-148, and modified by the Health Care and Education Reconciliation
Act of 2010, Public Law 111-152 (collectively, the Affordable Care Act). Beginning in
2014, certain taxpayers are allowed a refundable premium tax credit under § 36B to
assist in purchasing QHP coverage through an Affordable Insurance Exchange. The
premium tax credit is designed to make QHP coverage affordable by reducing an
eligible taxpayer’s out-of-pocket premium cost. (Under § 1402 of the Affordable Care
Act, eligible individuals are entitled to an advance payment of the premium tax credit,
which is paid directly to the QHP issuer selected by the individual.)
An employee, or a member of the employee’s family, who is eligible to enroll in
an employer-sponsored plan is not eligible for a premium tax credit unless the plan’s
coverage for the employee either is unaffordable, as defined in § 36B(c)(2)(C)(i)(II), or
does not provide minimum value, as defined in § 36B(2)(c)(2)(C)(ii). An employee (or
member of the employee’s family) also is not eligible if he or she actually enrolls in the
employer-sponsored plan, even if the plan is not affordable or fails to provide minimum
value. Under § 4980H, an “applicable large employer” is generally liable for an
assessable payment if any full-time employee receives a premium tax credit.
To satisfy the minimum value requirement under § 36B(c)(2)(C)(ii), a plan’s share
of the “total allowed costs of benefits provided under the plan” must equal or exceed 60

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percent of such costs. Section 1302(d)(2)(C) of the Affordable Care Act directs that the
statutory phrase -- “percentage of the total allowed costs of benefits provided under a
group health plan” -- is determined under rules contained in the regulations to be
promulgated by HHS under § 1302(d)(2) (titled “Actuarial Value”). The requirements
applicable to these HHS regulations are set forth in subparagraphs (A) and (B) of §
1302(d)(2).
3
Consistent with these statutory requirements, the determination of whether
an employer-sponsored plan provides minimum value will be based on the actuarial
value rules with appropriate modifications.
Subparagraph (B) of § 1302(d)(2) requires HHS to issue regulations under which
employer contributions to a health savings account (HSA) may be taken into account in
determining the actuarial value of an employer-sponsored plan. In addition,
§ 1302(d)(3) of the Affordable Care Act authorizes the Secretary of HHS to determine a
reasonable “de minimis” variation in the actuarial values used in determining the level of
coverage of a plan to account for differences in actuarial estimates.
IV. HHS INTENTIONS WITH RESPECT TO ACTUARIAL VALUE FOR QUALIFIED
HEALTH PLANS
The HHS actuarial value bulletin explains that, in accordance with the
requirements of subparagraph (A) of § 1302(d)(2) of the Affordable Care Act, the
actuarial value of QHPs offered through an Affordable Insurance Exchange (and of non-
grandfathered plans in the individual and small group insurance markets) is determined
by computing the ratio of (1) the total expected payments by the plan, computed in

3
Subparagraph (A) of § 1302(d)(2) requires the level of coverage of a plan to be “determined on the
basis that the essential health benefits described in subsection [1302](b) shall be provided to a standard
population. . ..”

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accordance with the plan’s cost-sharing rules (deductibles, co-insurance, co-payments,
out-of-pocket limits), toward the costs a standard population is expected to incur at
standard pricing for EHBs; over (2) the total costs a standard population is expected to
incur at standard pricing for the EHBs.
4
This actuarial value is used to determine the
“metal level” of a QHP (that is, platinum, gold, silver, or bronze). For example, bronze
plans must have a 60 percent actuarial value.
HHS announced that it intends to make available to the public an AV calculator
that could be used to determine the actuarial value of QHPs (and non-grandfathered
plans in the individual and small group insurance markets). The AV calculator would be
designed so that issuers would be able to input a limited set of information on the
benefits provided under the plan, and the calculator would provide the actuarial value of
the plan. The claims data underlying the AV calculator would represent the entire range
of EHB benchmark benefits that states would be permitted to select.
Although HHS anticipates that the overwhelming majority of issuers of QHPs
would be able to calculate the actuarial value of their health plans using the AV
calculator, HHS requested comments on whether a QHP issuer whose plan design
does not fit into the basic AV calculator logic should be able to obtain an actuarial

4
On December 16, 2011, HHS issued the “Essential Health Benefits Bulletin,” which outlined the
approach HHS plans to use to define the EHBs. (See
http://cciio.cms.gov/resources/files/Files2/12162011/essential_health_benefits_bulletin.pdf.) Under this
approach, each state would have the flexibility to select a “benchmark plan” from a list of permissible
options specified by HHS in the bulletin. The scope of benefits provided under the state-specific
benchmark plan would determine the scope of EHBs for QHPs in that state. In addition, the EHBs must
encompass the ten categories of benefits listed in § 1302(a) of the Affordable Care Act. If the benchmark
plan in a state does not offer coverage in each of the ten categories, the bulletin provides an intended
method for supplementing deficient categories of benefits so all QHPs in the state would include benefits
in all ten categories. The bulletin also provides an intended method for determining the benchmark plan
in a state if the state fails to make a selection.

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certification in limited circumstances. HHS is considering options to permit such QHP
issuers to obtain an actuarial certification that the plan design fits into the calculator
logic or to obtain an actuarial certification that adjustments to the AV calculator-
produced value are appropriate.
The HHS actuarial value bulletin also states that HHS intends to permit a de
minimis variation of plus or minus 2 percent (so that, for example, a bronze plan could
have an actuarial value between 58 and 62 percent). The bulletin also provides that
amounts contributed by an employer to an HSA or first made available to an employee
under a health reimbursement arrangement (HRA) would be taken into account by the
AV calculator. The intended method for accounting for these contributions is discussed
further below.
V. ASSUMPTIONS TO BE USED IN THE MINIMUM VALUE DETERMINATION
As discussed above, an employer-sponsored plan provides minimum value if its
actuarial value is at least 60 percent. For employer-sponsored plans in the small group
market, minimum value must be determined using a method that is consistent with the
actuarial value rules under § 1302(d) of the Affordable Care Act and HHS guidance
provided under that provision. It is expected that whether an employer-sponsored self-
insured plan or insured large group plan provides minimum value would be determined
in a manner generally consistent with the rules proposed by HHS for the calculation of
actuarial value for plans subject to the actuarial value rules under § 1302(d), with
appropriate modifications that reflect differences in the markets and also account for the
fact that employer-sponsored self-insured and insured large group plans are not
required to offer EHBs in each of the 10 categories. Accordingly, it is expected that the

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minimum value of an employer-sponsored self-insured plan and insured large group
plan would be determined in the same manner as actuarial value under § 1302(b) of the
Affordable Care Act, except that these plans might be valued using a comparison to
claims data reflecting typical self-insured employer plans, which would be based on
continuance tables
5
published specifically for use by such plans.
6
Moreover, employer-
sponsored self-insured and insured large group plans, as noted above, are neither
required to cover each of the categories of EHBs nor to conform their plans to any of the
EHB benchmarks that HHS intends to apply to QHPs, but would be permitted to take
into account all benefits provided by the plan that are included in any of the EHB
benchmarks.
In addition, an employer-sponsored plan would be permitted to add to the plan’s
value the employer contributions to an HSA and amounts made available under an HRA
using a method similar to the method used by QHPs that are offered through a SHOP
Exchange, as defined in § 1311(b)(1)(B) of the Affordable Care Act.
A. Standard Population and Utilization
Section 1302(d)(2)(A) of the Affordable Care Act specifies that actuarial value is
computed based on the health expenses that are expected to be incurred by a standard
population, rather than the population that a plan actually covers. For purposes of
determining minimum value in a manner that meets this standard, it is expected that two

5
A health insurance continuance table is a distribution of annual paid claims arranged in a format that
shows the amount of claims paid at each increasing level of expenditure, adding up to the total amount of
expenditures for a covered group of enrollees.

6
This use of claims data reflected in the continuance tables would be relevant only for the purpose of
determining minimum value, and does not imply that a plan must provide a particular set of benefits.

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types of continuance tables would be made available for use by employer-sponsored
plans. First, as described in the AV bulletin, HHS intends to publish continuance tables
based on claims representing the entire range of EHB benchmark benefits and
population data for employer-sponsored and individual market plans, with permissible
state or regional adjustments to the standard population, utilization and pricing. These
continuance tables would be incorporated into the AV calculator and would be used by
QHPs and employer-sponsored plans in the small group market. Second, to reflect the
differences between the population covered by QHPs (and plans in the small group
market) and the population covered by employer-sponsored self-insured and insured
large group plans, HHS intends to publish continuance tables based on claims and
population data for typical self-insured employer-sponsored plans. This second set of
continuance tables would be incorporated into an MV calculator, which would be
provided and could be used to calculate the actuarial value of an employer-sponsored
self-insured plan or an insured large group plan. This set of continuance tables would
not include claims or population data for plans that are required under the law to provide
EHBs or to meet state benefit mandates.
B. Treatment of HSAs and HRAs in Calculating Minimum Value
As noted above, the HHS actuarial value bulletin provides a potential approach to
the calculation of actuarial value for a high deductible health plan (HDHP) that is linked
to an HSA, as defined in § 223, or a group health plan that is integrated with an HRA
described in Notice 2002-45, 2002-2 C.B. 93, and Rev. Rul. 2002-41, 2002-2 C.B. 75.
The HHS actuarial value bulletin says that HHS intends to propose that, in
calculating the actuarial value of the combined HDHP and HSA or combined employer-

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sponsored plan and HRA, the calculation would assume that the employer contribution
to the HSA or amount first made available under an HRA is used by the employee to
pay for cost-sharing. Accordingly, an appropriate portion of these amounts would be
credited to the numerator of the actuarial value calculation. This means that any current
year HSA contributions and amounts first made available under an HRA could be used
to determine the actuarial value of an employer-sponsored plan. Generally, the
employer would receive the same credit for HSA contributions in the numerator of the
actuarial value calculation as it would receive for the same amount of first-dollar
insurance coverage. The same rule would apply for amounts first made available under
an HRA. (See HHS actuarial value bulletin, “Treatment of Health Savings Accounts and
Health Reimbursement Arrangements in Calculating Actuarial Value.”)
Treasury and the Service intend to follow HHS’s rules for including employer
contributions to an HSA and amounts made available under an HRA in the value of an
employer-sponsored HDHP combined with an HSA or an employer-sponsored plan
combined with an HRA when calculating the actuarial value of an employer-sponsored
plan for purposes of determining whether it provides minimum value.
VI. OPTIONS FOR DETERMINING MINIMUM VALUE
Under guidance to be issued by Treasury and the Service, and consistent with
rules to be promulgated by HHS, employer-sponsored plans would be able to use any
one of several tests to determine whether the plan meets minimum value. Comments
are requested on three potential approaches described below.
A. AV and MV Calculators
Under this option, employer-sponsored plans would be able to determine their

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actuarial value by entering information about the cost-sharing features of the plan for
different categories of benefits into a calculator. As described in the HHS actuarial
value bulletin (in the section entitled “Operational Method for AV Calculation Using
Standard Data”), HHS intends to provide an AV calculator that QHPs and plans in the
small group market could use to determine the actuarial value of their plans. In
addition, HHS and Treasury intend to develop an MV calculator, into which an
employer-sponsored self-insured plan and insured large group plan would be able to
enter cost sharing information that would be similar in design to the AV calculator but
based on continuance tables reflecting claims data of typical self-insured employer
plans. As such, the data underlying the MV calculator would represent the range of
benefits covered by self-insured plans.
A calculator generally would be used to make minimum value determinations by
employer-sponsored plans that have standard cost-sharing features. An employer-
sponsored plan would be able to input a limited set of information on the benefits
offered under the plan and specified cost-sharing features (for example, deductibles, co-
insurance, and maximum out-of-pocket costs) for the four core categories of benefits:
physician and mid-level practitioner care, hospital and emergency room services,
pharmacy benefits, and laboratory and imaging services. The calculator would also
take into consideration the annual employer contributions to an HSA or amounts made
available under an HRA, if applicable.
B. Design-Based Safe Harbor Checklists
Based on analysis and information provided by HHS, Treasury and the Service
intend to issue guidance that would give certain employer-sponsored plans an easy

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means to determine whether a plan provides minimum value without using a calculator
or performing any calculations and without the need for actuarial expertise. This
alternative would provide an array of safe harbor checklists that employer-sponsored
plans may compare to their plan’s coverage. If the employer-sponsored plan’s terms
are consistent with or more generous than any one of the safe harbor checklists, the
plan would be treated as providing minimum value.
The safe harbor checklists would be used to make minimum value
determinations for plans that cover all of the four core categories of benefits and
services and have specified cost-sharing amounts. Each safe harbor checklist would
describe the cost-sharing attributes of a plan (such as deductibles, co-pays, co-
insurance and maximum out of pocket costs) that apply to the four core categories of
benefits and services.
7
The guidance would provide several safe harbor options,
including coverage equivalent to an HDHP combined with an employer-funded HSA,
that would satisfy the MV requirement. An employer-sponsored plan providing the four
core categories would be treated as providing minimum value if its cost-sharing
attributes are at least as generous as any one of the safe harbor checklist options.
Treasury and the Service expect to release the safe harbor checklists when HHS
and Treasury release the MV calculator.
C. Actuarial Certification
Neither a calculator nor the safe harbor checklists would be able to
accommodate employer-sponsored plans with “nonstandard” features, such as

7 Although employer-sponsored plans are not required to cover all four categories of coverage, it is
anticipated that plans failing to cover these categories would not satisfy any of the design-based safe
harbors.

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quantitative limits on any of the four core categories of benefits (including, for example,
a limit on the number of physician visits or covered days in the hospital). Under a third
option, consistent with the options proposed in the HHS actuarial value bulletin,
employer-sponsored plans with nonstandard features would be able to generate an
initial value using a calculator and then engage a certified actuary to make appropriate
adjustments that take into consideration the nonstandard features.
Employer-sponsored plans with nonstandard features of a certain type and
magnitude would also have the option of engaging a certified actuary to determine the
plan’s actuarial value without the use of a calculator. The actuarial value would be
determined in such case in accordance with the Actuarial Standards of Practice
established by the Actuarial Standards Board. The certified actuary would make this
determination based on the plan’s benefits and coverage data and the standard
population, utilization and pricing tables published by HHS in consultation with Treasury
in the form of the continuance tables available for purposes of the valuation of
employer-sponsored plans and consistent with applicable administrative guidance.
VII. REQUEST FOR COMMENTS
Comments are requested on issues to be addressed in guidance on determining
minimum value for an employer-sponsored plan. Comments are requested on issues
plan sponsors, issuers, and employers may face in evaluating plan designs that will
cover part or all of 2014, including suggestions for transitional relief for plan years that
start before and end in 2014.

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Comments are requested on the potential alternative methods for determining
whether an employer-sponsored plan provides minimum value. Comments are
specifically requested on the following points:
1. The AV calculator or MV calculator would permit sponsors and issuers of
employer-sponsored plans to enter information reflecting the benefits they
cover and the cost-sharing features relating to the four core categories of
benefits. Comments are requested on whether and how the actuarial value
initially generated by the AV calculator or the MV calculator could be adjusted
to take into consideration other benefits provided under the plan. For
example, how could benefits such as wellness benefits be added to the
actuarial value initially generated by the AV calculator or the MV calculator to
determine whether an employer-sponsored plan provides minimum value?
Are there other examples of benefits that employer-sponsored plans cover
today or are likely to cover that might not be captured by the MV calculator
and, if so, are employer-sponsored plans that cover those benefits typically
near 60 percent actuarial value or more likely to be well above 60 percent
actuarial value?
2. As discussed above, employer-sponsored plans with nonstandard features,
such as quantitative limits on the four core categories of benefits, would not
be able to use the AV calculator or the MV calculator (without an adjustment)
to determine whether the plan provides minimum value. Comments are
requested on nonstandard features within the four core categories that are
sufficiently narrow that the AV calculator or the MV calculator could still be

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used without adjustment to determine whether a plan provides minimum
value and on the quantitative limits that employer-sponsored plans commonly
use today. Comments are also requested on other plan features that could
require the plan to adjust the valuation generated by the AV calculator or MV
calculator.
3. Comments are requested on the terms that should be included in the safe
harbor checklists and the types of plans for which safe harbor checklists
should be developed.
4. With respect to a possible independent actuarial value certification, comments
are requested on standards and safeguards that should be applied to ensure
that the plan meets the 60 percent actuarial value threshold for the minimum
value determination.
Comments may be submitted in writing on or before June 11, 2012. Comments
should be submitted to Internal Revenue Service, CC:PA:LPD:PR (Notice 2012-31),
Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044, or
electronically to Notice.Comments@irscounsel.treas.gov
. Please include “Notice 2012-
31” in the subject line of any electronic communications. Alternatively, comments may
be hand delivered between the hours of 8:00 a.m. and 4:00 p.m. Monday to Friday to
CC:PA:LPD:PR (Notice 2012-31), Courier’s Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington, D.C. All comments will be available for public
inspection and copying.
FOR ADDITIONAL INFORMATION
For further information on this notice, call the Office of the Division

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Counsel/Associate Chief Counsel (Tax Exempt & Government Entities) at
(202) 927-9639 (not a toll-free call).