Why ACA’s ‘Essential’ Coverage Might Mean ‘Bare Bones’

By © Kaiser Health News Aug 26, 2013

It came as a surprise to some that the Patient Protection and Affordable Care Act (PPACA or ACA) seems to allow large employers to offer health insurance that pays for preventive care and not much else.

As Kaiser Health News recently reported, proposed and final rules issued in spring 2013 fail to bar large employers from offering insurance policies that could exclude benefits such as hospitalization. Offering bare-bones policies may result in some fines, but that expense could be less than the cost of offering traditional medical coverage. (The Wall Street Journal broke the story here; subscription may be required.)

For large employers, "the feds imposed no minimum standard on how skimpy that coverage can be other than to say, in essence, it's got to be more robust than a dental plan or a vision plan," said Ed Fensholt, a senior vice president at insurance broker Lockton Companies. "We had customers looking at offering some relatively inexpensive and skimpy plan designs to satisfy the individual mandate at modest cost.”

Retailers, restaurant chains and temporary staffing companies are said to be interested.

But how can a law praised for expanding coverage — one that includes an "employer mandate" to offer "minimum essential coverage" — allow companies to offer insurance that might not even cover hospitalization?

Take a walk through the ACA weeds to see why.

First of all, there is no outright ban on skinny plans — even after the employer mandate kicks in in 2015. Instead, large employers — those with 50 or more full-time employees — run the risk of fines only if the coverage doesn't conform to ACA rules. The regulations published so far, however, seem to allow skinny plans with a penalty that many employers may choose to pay because it is less costly than offering fuller coverage.

There are two fines in the health law for large employers failing to offer adequate coverage.

Minimum Essential Coverage

First, any company that does not offer "minimum essential coverage" is liable for a $2,000-per-worker penalty (minus the first 30 workers), triggered when at least one employee enrolls in subsidized coverage in the online marketplaces known as exchanges.

But what is minimum essential coverage? Not as robust as you might think. To start, don't confuse it with "essential health benefits," including hospitalization/surgery, maternity benefits and prescription drugs, that must be included in plans sold to individuals or small employers.

Small Group Plans and Essential Health Benefits

The ACA defines a small employer as having at least one but no more than 100 employees. However, it provides states the option of defining small employers as having at least one but not more than 50 employees in plan years beginning before Jan. 1, 2016. Generally, if you have fewer than 100 employees (using the definition for full-time equivalents) you will be purchasing coverage in the small group market.

Starting Jan. 1, 2014, nongrandfathered fully insured plans in the individual and small group market and those in the exchanges are required to provide coverage of benefits or services in 10 separate categories that reflect the scope of benefits covered by a typical employer plan. Self-insured small group plans, large group plans, and grandfathered plans are not required to offer essential health benefits.

-- SHRM Online editors

If health insurance is merely sponsored by an employer, it passes one test for minimum essential coverage.

Now how good does that employer insurance have to be? The regulations are obscure, defining minimum essential coverage largely in terms of what it is not. For example, "limited-scope dental or vision benefits" are not minimum essential coverage. Nor is "coverage only for a specified disease or illness."

Neither the law, nor the regulations say much about what minimum essential coverage offered by a large employer is. As a result, many experts believe large employers can shield themselves from the $2,000 penalty by offering a plan that covers the health law's required preventive care, but still leaves workers vulnerable to thousands in bills if they're hospitalized. If employees sign up for such plans, which may cost as little as $50 a month, they would also be protected from health-law penalties levied on individuals without coverage.

Minimum value

The health law also fines employers that don't offer "minimum value" in their health plans, says Alden Bianchi, a Boston-based benefits and compensation lawyer. Skinny coverage flunks that test, based on regulations that measure minimum value against "benchmark plans" in each state, Bianchi said. But the employer penalty is only $3,000 for each worker enrolling in subsidized exchange coverage. That's likely to be much less than the fine for not offering minimum essential coverage, which is $2,000 for nearly every employee in the company, even if most don't buy policies in the exchanges.

But what about other rules governing health benefits? What about the part of the health law that bans insurers from cutting off benefits at a certain dollar level? Not a problem for skinny plans. Unlike the "mini-med" plans in common use before the law was passed, they don't impose a dollar cap; they merely exclude large categories of care, which also keeps down costs.

What about new rules limiting out-of-pocket expenses for consumers? For 2014, your plan can't make you pay more in co-pays and deductibles than $6,350 for individuals and $12,700 for families. (That may temporarily be higher if your employer has separate administrators for drug benefits and doctors and hospitals.) Skinny plans pass the test again. Out-of-pocket caps are for covered care only, and skinny plans don't cover much care.

What about restrictions on self-insured employers (the large majority of large companies are self-insured) offering a rich-benefit plan to managers and a limited-benefit plan to hourly workers? Skinny plans survive this one, too, says Lockton's Fensholt. These nondiscrimination rules contain exceptions for high-turnover workers, he said. And they require employers only to offer the management plan to hourly workers, not for the workers to enroll.

"That plan would be priced at a place where relatively few rank and file employees would want it," Fensholt says. "And then they'd offer the skinny plan to the rank and file."

When asked about the situation, the Obama administration said consumers lacking good coverage "can enter into the marketplaces and choose a health insurance option that works for them."

Bianchi, who represents large employers, says the people who wrote the law intended to give companies a bare-bones option.

"The ability to offer such plans is a result of conscious policy decisions by Congress, as implemented by the regulators," he wrote in an industry brief.

The Cato Institute's Michael Cannon, on the other hand, suspects the administration "had no idea what they were doing," as he wrote on the libertarian think tank's blog.

Kaiser Health Newsis an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

© 2013 Kaiser Health News. All rights reserved. Republished with permission.

Related SHRM Article:

Despite Penalty, 'Skinny' Health Plans Are Still an Option, SHRM Online Benefits, February 2014

Related External Articles:

The Skinny on Skinny Plans, Littler Mendelson via Staffing Association Analysts, November 2013

Bare Bones Health Plans Expected To Survive Health Law, Kaiser Health News, August 2013

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