Smart Benefits: Are Skinny Plans Becoming a Big Draw?

Smart Benefits: Are Skinny Plans Becoming a Big Draw?

Under the employer mandate provision of the Affordable Care Act (ACA), employers with 50 or more full-time employees must provide minimum value, affordable coverage – or face a penalty. To comply with this provision, one option that seems to be gaining traction among these employers is the “skinny” plan.

A skinny plan is a non-minimal value plan, meaning, it provides medical care but doesn’t meet the requirement that participants pay not more than 40% of covered medical expenses. That means employers can just offer employees preventative services or other non-catastrophic coverage.

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

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

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.

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.

What about Essential Benefits?

The first important ACA provision that allows for skinny plans is the provision that all health plans offered in the individual or small group market include the ten essential health benefits.  Therefore, in the individual and small group market, health plans must cover ambulatory patient services, emergency services, hospitalizations, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitation services, laboratory services, preventive and wellness services and pediatric services including oral and vision care. Noticeably absent, and critical for the existence of skinny plans, is a requirement that health plans offered in the large group market include the essential health benefits.

In a recent survey by the National Business Group on Health, 16% of large employers indicated they plan to offer skinny plans in 2015 along with at least one health plan option that does qualify under ACA.

So workers sign up for the skinny plans, which shield them from the individual mandate penalty (the greater of $95 or 1 percent of their income) but offer little coverage.

Many thought such low-benefit "skinny plans" would be history once the health law was fully implemented this year. Instead, 16 percent of large employers in a survey released Wednesday by the National Business Group on Health said they will offer in 2015 lower-benefit coverage along with at least one health plan that does qualify under ACA standards.

Skinny plans are part of a two-step strategy that lets workers and employers avoid health law penalties but may not produce substantial coverage. Some skinny plans cover preventive care and nothing else -- no inpatient or outpatient hospital treatment,

Employers can shield themselves from health law penalties by offering insurance that meets tests for affordability and value -- regardless of whether anybody signs up. At the same time, workers can avoid the ACA's individual penalty by enrolling in a company skinny plan, which qualifies as "minimal essential coverage" for individuals under the health law by the mere fact that it's employer-sponsored.

Amy Gallagher has over 21 years of healthcare industry experience guiding employers and employees. As Vice President at Cornerstone Group, she advises large employers on all aspects of healthcare reform, benefit solutions, cost-containment strategies and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, and is often quoted by national publications on the subject matter. Locally, Amy is a member of SHRM-RI, the Rhode Island Business Group on Health, and the Rhode Island Business Healthcare Advisory Council.