IRS closes loophole on popular insurance


November 5, 2014 by Tony Novak

Yesterday IRS closed a loophole in the regulations of health care reform that insurance companies planned to exploit for the benefits of their business clients. IRS Notice 2014-69 issued on election day makes it clear that low-cost insurance plans (sometimes referred to as “limited indemnity” or “mini-med” or “skinny plans”) that do not provide all of the 10 minimum essential benefits – even if they meet minimum value calculations required under the law – will not exonerate an employer from both types of the shared mandate penalties.

Three additional points are worth consideration:

1. The ruling’s impact applies to the $3,000 employer shared responsibility payment for employees who receive a subsidy, not the overall $2,000 per employee payment. Thus, this new proposed regulation has much less net financial impact on employers than would otherwise be the case.

2. These “skinny” mini-med plans that limit hospitalization coverage must have richer benefits for other non-hospitalization care in order to meet the overall minimum value test. The alternate plan typically have low deductibles and lower out-of-pocket costs to employees; more of the high priority benefits that employees look for in a health plan. Other things being equal, employees tend to prefer this type of alternate coverage compared to the standard Obamacare designs. As a practical matter, the ruling makes it more expensive for employers to provide robust benefits like care in a doctor’s office or medical clinic that employees then to value more highly than hospitalization coverage.

2. This new IRS position is clearly not consistent with the law as written. This inconsistency has drawn criticism immediately by some, apparently including the drafters of the law, who point out that plans that meet the minimum value test using alternate approaches were intended to qualify. In other words, the IRS may be pushing in the wrong direction without the legal authority to do so. If so, we can expect further word on the issue in the future.

There is a bright side to the announcement. The public discussion surrounding this topic raises public awareness that it is possible for employers to minimize and perhaps even eliminate shared mandate penalties through other solid planning strategies.

I’ve published a number of other blog posts and articles on this topic. This ACA planning checklist is offered as a starting point for businesses with 50+ employees who want to consider the range of options available. This new web page describes the health care planning process and services I offer.

Added November 13, 2014:

The take-home message to employers in all categories is simply this:

There are other more effective strategies that employers can use to control costs and help employees manage the disruptive changes triggered by the Affordable Care Act. Make sure you know the alternatives and have weighed the options for your business. Many of these are covered in other blog posts and the other publications that I’ve authored or contributed to over the past several months. However at this late date it might be too late for online research. Instead, I invite employers who are not confident that they have a strong ACA response strategy to act quickly to schedule a telephone consult as soon as possible to explore the options and reach an effective strategy more quickly. With various tax and insurance deadlines looming, time is of the essence.

I can be reached at (800) 609-0683 x2 or by email at With so many firms scrambling to prepare for the December 15 special enrollment period deadline and the December 31 tax deadlines, I expect to schedule consults on a daily basis on a first come first served basis. See my personal web site for details on these initial consult terms and fees.

2 thoughts on “IRS closes loophole on popular insurance

  1. There are better ways to meet employer objectives, improve benefits to employee and control costs!

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