The IRS Weighs in on Skinny Plans
Skinny Plans have been told to beef up by the IRS. Until recently, employers have been able to enjoy ambiguities and loopholes in ACA regulations that made offering low-cost “skinny plans” a viable option. Regulations proposed in November 2014 definitively declared that plans that do not cover in-patient hospitalization or physician services do not meet “minimum value” requirements. Employers relying on skinny plans must be ready to beef up their offerings to comply.
How Did Skinny Plans Come About?
Under healthcare reform regulations, large employers must offer minimum essential coverage that satisfies minimum value and affordability requirements (but need not cover Essential Health Benefits). “Bare-bones” or “skinny” plans are creatively designed group health plans that offer preventative services and meet other requirements, but may not offer minimum value. They have been popular among employers with low-wage workers or have used the now outlawed “mini-med” policies in the past.
Not offering minimum essential coverage results in “the big penalty” for large employers: hefty fees of $2,000 per employee (minus the first 30 workers). Skinny plans have been considered minimum essential coverage under the current, somewhat vague definition. They adhere to other laws as well. They don’t cut off benefits at a certain dollar amount; instead, they exclude whole categories of care to keep down costs. They avoid rules limiting out-of-pocket expenses for consumers because these caps only apply to covered care. Thanks to exceptions to the rule for high-turnover workers and the fact that hourly workers need only to be offered rich-benefit plans, not to purchase them, skinny plans avoid breaking nondiscrimination laws as well.
It has never been clear whether skinny plans offer “minimum value.” However, the penalty for failing this requirement—$3,000 for each worker enrolling in subsidized exchange coverage—may be worth the savings in healthcare costs for employers. They also benefit employees who wanted to avoid individual mandate penalties, especially healthy low-income workers who are loath to pay for extra benefits.
Recent Clarification of “Minimum Value”
There has been a lot of debate on whether the ambiguity in the new healthcare laws about what counts as “minimum value” coverage was intentional or accidental. Did regulators intend to give relief to employers that had traditionally been unable to afford health care, such as those in the hospitality, food service, retail, and temp staffing industries? Or was it simply an oversight?
In November 2014, the HHS and Treasury addressed the issue by proposing new regulations. In Notice 2014-69, the IRS declared “that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both)[…] do not provide the minimum value intended by the minimum value requirement.” No MV Calculator or actuarial certification can be used to prove that plans without coverage for in-patient hospitalization or doctor visits provide minimum value.
Consequences of the Updated Rules
Companies that have been looking to skinny plans to offer coverage to their employees that all can afford have a few options.
They can continue to offer skinny plans beefed up with hospitalization and physician services. By placing a high deductible on these services, such plans can control costs while meeting new regulations.
They can accept the penalty. Large employers can still help employees avoid the individual mandate penalty by offering a plan with minimum essential coverage that does not offer minimum value. It’s important for these companies to inform employees of this choice.
They can reduce employee hours to less than 30 per week, effectively reducing the number of full-time employees who need to be offered coverage. This is a risky move in terms of company culture and employee morale, but some employers are pursuing it as a last option.
As always, we are here to help you any way we can. Please don’t hesitate to call or email if you need us.
The Deerfield Team