Why skinny plans are getting fatter

Commentary: As employers continue to work to implement the provisions of the Affordable Care Act and provide health care coverage that is both fair for the employee and affordable for the organization, many have considered so-called skinny plans. These are health insurance plans that provide coverage meeting the ACA’s minimal essential coverage or minimum value requirements, but offer very little else. 

However, toward the end of 2014, the federal government tried to slam the door on a type of skinny plan called a minimum value plan. That’s when it issued rules clarifying that if a minimum value plan does not provide coverage for in-patient hospitalization or physician-services, then the employer cannot avoid a penalty for failing to offer coverage that meets the ACA’s minimum value threshold.

So, sometypes of skinny plans are dead. But are all skinny plans dead? Maybe they just need to bulk up a bit. That’s the approach some employers are taking when looking for ways to offer minimal essential coverage, or coverage that provides minimum value to their employees, ensuring that they have health insurance without breaking the company’s bank.

Also see: Bare bones health plans may be small employers’ savior

It’s all about the employer mandate

There are two different penalties that make up the employer mandate:

The first impacts employers who choose not to offer minimum essential coverage to a sufficient percentage of their full-time employees (70% in 2015; 95% in 2016). These employers must pay a fine of $2,000, multiplied by the total number of full-time employees, minus 30 (minus up to 80 for 2015), as long as at least one full-time employee receives a premium tax credit on an exchange. This is commonly referred to as “the big penalty.” 

The second penalty is much easier to swallow. Generally, this penalty applies if the employer’s coverage is unaffordable, or fails to meet minimum value. The penalty is $3,000 multiplied by the number of full-time employees who receive a premium tax credit on an insurance exchange. This penalty amount is capped at the number of the employer’s full-time employees minus up to 30 (minus up to 80 in 2015) and multiplied by $2,000.

In order to avoid the smaller penalty, many employers were investigating the viability of offering minimum value plans without physician services or hospitalization coverage. That changed in November 2014, when the government decided that such plans do not meet the minimum value threshold for purposes of the ACA. In other words, the government closed the loophole on these types of skinny plans.

Also see: Learning curve for ACA compliance still steep

Despite these new rules, skinny plans that offer minimum essential coverage, but not minimum value, could still be a viable alternative for employers who want to do something for their employees, and who have populations that have not historically had more robust health insurance through work. Such plans could also help the employee avoid the ACA’s individual mandate penalty even if the employer would still face a penalty.

Beefing up the skinny plan

This new development affecting minimum value plans is leading employers to look for ways to beef up those skinny plans. They are looking to have more comprehensive benefits woven into what was the bare bones structure of the old skinny plans. Based upon the government’s new rules from late 2014, obviously such plans must now include in-patient hospitalization and physician services to meet the ACA’s minimum value threshold. However, it’s still possible to create a benefits package that satisfies these requirements while still controlling costs.

Specifically, an employer could offer a policy that includes hospitalization and physician services and place a high deductible on those services. Such a plan could still meet ACA requirements and, because it’s largely unfunded, help to minimize the employer’s costs.

Also see: How King v. Burwell could shake out for employers

Let’s be clear: This will not be the best option for most employees, and it certainly won’t work for heavy usage plan participants. However, depending upon an organization’s employee population, it might make sense to include this option in the benefits mix. Employers need to offer a wide spectrum of health plans and the full array must meet federal standards under the ACA. This type of beefed-up skinny plan could be part of that mix.

Another option for employers is to not offer coverage and pay the penalty. Employees would then seek coverage on government-run health insurance exchanges. For some organizations, this makes mathematical sense. However, there is a cultural cost to taking away employee benefits and employers must weigh how willing they are to create (and deal with) a negative vibe.

The third option, which some employers are pursuing, is reducing employee hours to less than 30 hours per week, the threshold for whether or not workers must be offered health insurance. Reducing hours also poses a threat to the organization’s culture, and employers should tread carefully.

Employers are in a difficult spot trying to figure out how to balance expenses, delivery of quality benefits and maintaining employee morale. It is a juggling act, and every employer’s situation is unique.

For many, the newly bulked-up skinny plans might be part of the answer.  

John Turner is president and CEO of Corporate Synergies, an employee benefits and P&C insurance brokerage firm.