Affordable Care Lite: Planning Options

August 25, 2014

Large employers with lower paid workforces face major hurdles in providing health benefits to their employees in 2015. The obligation to provide minimum essential benefits that also meet affordability requirements is daunting to employers who have not offered such care in the past. Many employers have offered so-called “mini-med” plans, which have often been reported as a thing of the past. However, employers are considering a new version of these plans referred to as “skinny-med” plans.

 Insurance plans fall into one of two types: the first holds the individual and small-group markets; and the other captures the large-group market and self-funded plans.

The first group is subject to the rules we have come to understand as Obamacare -- preventive services without copay, essential health benefits, no annual or lifetime limits on coverage, and out-of-pocket (in-network) spending cannot exceed $6,350 for individuals ($12,700 for families). At a minimum, these plans meet a 60% “actuarial value” threshold for bronze plans. Insurers cannot offer a plan that fails to meet these standards on the individual and small-group markets.

Coverage is regulated less stringently for large-group and self-insured plans. These employers must still offer copay-free preventive care. However, certain additional benefits are subject to greater latitude, even reducing essential health benefits, and evading the 60% actuarial value threshold. There is a catch, of course: out-of-pocket spending protections only apply to benefits covered by the plan. In theory, a traditional mini-med plan could cover the bare minimum in preventive services, and nothing else. However, offering—and carrying—subpar coverage has implications for the employer and individual penalties.

Employers with these plans have three options:

  1. Offer compliant coverage. Most employers have always offered coverage that generally complies with (and exceeds) requirements laid out in the ACA. Employees offered compliant coverage from an employer are not eligible for exchange subsidies.
  2. Offer “loophole” coverage. Employers are free to purchase plans that do not comply with ACA. If the plan does not offer benefits at the 60% minimum value, employees below 400% of the federal poverty level are eligible for subsidies. The employer could be slapped with a penalty of $3,000 per employee who opts into the exchange. Individuals who carry subpar coverage might also be subject to the individual mandate penalty.
  3. Offer coverage that fails to meet loophole standards, or offer no coverage. Employers maintaining a plan that fails to meet the barest preventive care requirements, or offers no coverage at all, is subject to a $2,000 penalty per full-time worker.

The decision to provide health benefits to employees is not one size fits all, and there are choices. Consideration of the benefits and consequences of providing maxi or skinny coverage, or going bare, needs to be made now.

This week’s WSJ story introduces a new twist: employers could get around the employer penalty associated with skimpy coverage if they offer a compliant plan alongside a mini-med option. Because employees are offered minimum essential coverage through their employer, they’re ineligible for tax credits; those are the trigger mechanism for the employer penalties.

This strategy might work for some companies; the WSJ story features a security firm, where security-guard employees essentially act as their own young, healthy, low-income risk pool—characteristics that make bare-bones plans broadly appealing (if insufficient for serious health events). However, given a more heterogeneous risk pool, this move invites adverse selection into the more generous plan.

The loophole was probably an oversight—but one borne out of an intentional decision to leave self-insured and large-group plans largely untouched by regulatory changes, appeasing the interests of important stakeholders. In other words, it’s another symptom of our wildly counterproductive tendency to cling to the status quo in health policy.

 

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