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"Skinny" Plans - Too Good To Be True?

News articles continue to be written and circulated about cost containment strategies that employers can adopt to help offset the financial impact of health care reform.   Recently, news sources are calling attention to a new strategy that potentially allows employers to offer a stripped down medical plan and still meet requirements of the Affordable Care Act and avoid affordability and eligibility penalties.  The market has started referring to these as "Skinny" or "Bare Bones" plans ? regardless of the name, the first question an employer must ask is "is this too good to be true?" 

Let's look a bit closer: 

This strategy has the potential to work for a limited number of employers with large populations of employees who are not eligible for the major medical plans and are working 30 or more hours per week (HCR definition of a full-time employee). The concept is built on the ambiguity around what type of employer plan satisfies the definition of minimum essential coverage.  

Offering at least minimum essential coverage to at least 95% of all Health Care Reform full-time employees would allow an employer to avoid the $2,000 eligibility penalty.  In addition, if an employee enrolls in minimum essential coverage through their employer they cannot receive a subsidy to purchase coverage through the exchange, making it more difficult for them to trigger the $3,000 affordability/sufficiency penalties. 

Are these plans legal? 

The law today only defines minimum essential coverage as a plan with preventive services and no annual or lifetime maximums. This means a plan would not have to provide coverage for services like hospital visits, x-rays and pre-natal care.  Although these new "Skinny" plans do not sound that attractive, if paired with a limited medical plan, they could help employees who simply cannot afford to pay $100+ per month in employee only contributions for a traditional major medical plan. 

While the law is currently written to allow for these "Skinny" plans it seems unlikely that the government would allow a plan to meet the minimum essential coverage standards with only preventive care.   We would expect the definition of minimum essential coverage to be expanded beyond preventative only coverage. This strategy requires the annual cost of the employer premium to be less than $3,000 per employee; otherwise it would not be cost effective.  If these "Skinny" plans start to look more like traditional major medical plans, how soon before they cost the employer $250+ per month? 

Deja Vue? 

In similar experience, another strategy employers were considering soon after the passing of Health Care Reform was moving to a self funded arrangement.  It appeared that an employer with a self funded plan would not be required to offer an annual enrollment period, and could only offer an opportunity to enroll at the time an employee is hired.  This had great potential to limit the cost exposure for an employer.  This, however, was short lived and the government now requires all self funded plans to have an annual open enrollment period.   

So we have to ask ourselves, are these "Skinny" plans too good to be true?  If it sounds like a quick fix it is unlikely the government will allow the perceived loophole to remain a viable option.

Posted May 23, 2013

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