The IRS weighs in on the ACA and ‘skinny’ plans

No question that employers have been struggling with how to satisfy the ACA requirements of offering coverage while still avoiding what is perceived to be the heavy financial burden of offering full coverage. Some employers in this situation have considered offering a new type of plan to full-time employees, called a “minimum value” plan. From that concept derived a type of plan called a “skinny” plan that provides coverage for some medical services, but excludes coverage for others like inpatient hospital services, or possibly physician services.

See also: IRS closes ACA minimum value health plan loophole

In IRS Notice 2014-69, there is some clarification that these skinny plans (plans that offer limited or no coverage for in-patient hospitalization services and/or physician services) will not provide “minimum value” under the health reform law. But then they give a one year extension to offer that coverage if it is already in place. In order to take advantage of this extension, there are two conditions:

1. The employer must have a binding written commitment to adopt or began enrolling employees into a skinny plan prior to Nov. 4, 2014.
2. The employer must have relied on the results of the MV Calculator to determine whether the plan offered minimum value coverage.

Of course more regulation is anticipated, and it is anticipated that when final regulations are issued, they will not apply to these plans immediately if the above criteria are satisfied. These plans will be considered minimum value for the purposes of the employer mandate until the end of the plan year as long as the plan year commences prior to March 1, 2015.
If an employer decides to offer a minimum value plan that does not include inpatient hospital or physician services, the employer has to be careful about its disclosures to employees. First, it must not state or imply that the offer of coverage under the skinny plan prevents an employee from obtaining a premium tax credit in the exchange. Second, the employer must correct any prior disclosure which implied that the offer of the skinny plan would prevent an employee from being eligible for the subsidies. This is because employees are not required to consider skinny plans when looking to obtain subsidies for exchange participation.

Based on this notice, it appears fairly clear that if an employer does not already have a skinny plan in place, they can’t create one. If they have created one, it is a temporary fix, not a permanent solution. Finally, since they took the time to issue regulations specific to these plans, it should be anticipated that they will be pretty heavily scrutinized if an employer determines to offer it. But the rules are out there. So if you decide to maintain a skinny plan, make sure you know what the true limitations are and stay aware of the possibility of future changes to the limits on such an offering.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at kmcmurdy@foxrothschild.com or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.