Employers Eye Bare-Bones Health Plans Under New Law

[ill wind]

42. Don't Be So Sure.....

"...5. Can staffing firms satisfy their obligation to offer health coverage (thereby avoiding the no coverage penalty) by offering a group health plan that fails to provide minimum value?
Yes.
Penalties under the “coverage option” explained above (i.e., the 4980H(b) penalty) apply where an employer makes an offer of “minimum essential coverage” under an “eligible employer-sponsored plan.” The term “minimum essential coverage” is misleading. It does not refer to the content of the coverage; rather, it applies to the source of the coverage. Sources of minimum essential coverage include Medicare and Medicaid. They also include coverage under an eligible employer-sponsored plan. An “eligible employer-sponsored plan” means a “group health plan” that provides for (any) medical care2 other than just a HIPAA excepted benefit. (HIPAA excepted benefits include stand-alone vision and dental plans and hospital and fixed indemnity plans, among others.)
A common mistake is to conflate “minimum essential coverage” and “essential health benefits.” The latter consists of 10 broad categories of coverage3 that must be included in fully-insured products sold in the individual and small group markets as part of an “essential health benefits package.” These rules don’t apply, however, to large group and self-funded plans. Another mistake is to equate minimum essential coverage with “minimum value.” As previously noted, if an employer plan does not provide minimum value, an employee may apply for subsidized coverage through a public exchange, which could trigger a $3,000 employer penalty. But if an employer is unconcerned with meeting the minimum value standard, it need only offer a group plan that covers “medical care” and that complies with the Act’s insurance market reforms. As a consequence, a plan that covers, say, only first dollar preventative care and clinical trials clearly covers medical care and therefore will qualify as an eligible employer-sponsored plan.
Non-minimum value plans of the sort described in the preceding paragraph are beginning to make their way onto the market, although they typically include a wellness component along with some non-coordinated hospital and fixed indemnity features. Such plans must, of course, satisfy the requirements of prior law as well as the Act's insurance market reforms. The advantages are two-fold: first, they are relatively inexpensive, and, second, they do not require underwriting. There is one more, very important advantage: they allow the employer to satisfy the “coverage option” and avoid the no-coverage penalty, which is generally acknowledged as being far more onerous than the coverage penalty. Admittedly, the employer has some residual exposure under the coverage prong (i.e., the 4980H(b) penalty). But the cost of the exposure in many instances will be far less than the cost of providing affordable coverage that provides minimum value.
Some have suggested that the no-minimum value plan approach is somehow abusive and that the regulators will move to bar such plans once they become aware of them. There is no basis for this claim. The ability to offer such plans is a result of conscious policy decisions by Congress, as implemented by the regulators. If plans fail to provide minimum value, low-income employees will be free to obtain subsidized coverage under a plan that provides an essential health benefits package from a public exchange, and the employer will be subject to penalties as a consequence. Moreover, for low-income employees, the cost of subsidized coverage will in most cases be less than 9.5% of household income, which is what an “affordable” employer plan would cost. And even if the employee decides to forgo exchange coverage and buys the employer’s nonminimum value product, he or she will not be subject to the individual tax penalty for failing to have minimum essential coverage.
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