As most employers know, the Affordable Care Act (ACA) requires employers with 50 or more full-time employees to offer health coverage to their full-time employees averaging 30-or-more hours per week. Some employers have sought to satisfy the obligation to employees by using products that have been labeled “skinny” plans.
The term “skinny” plans refer to health plans that provide the barest coverage possible under the rules and guidance in existence. Typically, such plans cover preventative services such as doctor visits and generic drugs while not covering higher cost services such as x-rays, laboratory tests, surgeries, and hospital stays.
Not surprisingly, the costs of such minimal coverage plans can be quite low. These low cost plans have been attractive to employers with large numbers of low paid workers, such as restaurant chains and retail stores. In many cases, such employers previously did not even provide coverage for these employees before ACA.
Offering the skinny plans meant that these employers were not subject to the $2,000 per employee per year penalty for failing to offer coverage. These employers might be subject to the $3,000 per employee penalty if the skinny plan coverage was not providing a “minimum” value, and the employee elected to purchase insurance on the Exchanges and was eligible to receive a premium subsidy. The $3,000 penalty is calculated based on the number of employees who actually did purchase Exchange coverage and received a subsidy.
One of the methods which can be used to demonstrate whether coverage is providing a minimum value is to use the Minimum Value Calculator (MV Calculator) created by the Department of Health and Human Services (HHS). To HHS’s displeasure, ironically, some skinny plans did demonstrate minimum value when plugged into the MV Calculator. HHS will be revising the MV Calculator, but until that happens, HHS is viewing such minimum value calculation as not in harmony with the intent of ACA.
Last November, the Internal Revenue Service (IRS) and HHS indicated in Notice 2014-69 that notwithstanding passing minimum value under the MV Calculator, group health plans that did not provide hospitalization were not to be considered providing minimum value. HHS followed that up this March 10th by issuing final regulations wherein HHS expressly defined minimum value as requiring the provision of substantial coverage for in-patient hospitalization services and physician services. Unfortunately, HHS did not define what would constitute “substantial” hospital and physician service coverage.
Nonetheless, these final regulations will require employers who are using or who were considering using skinny plans to redesign their programs or rethink their options if they wish to avoid all tax penalties. It may require completely scrapping the skinny plan and utilizing a more traditional and more expensive health program, or tacking on a hospitalization program to complement the skinny plan.
Employers that previously adopted such programs in 2014 for the 2015 Plan Year and had enrolled employees in late 2014 will have until the end of the 2015 Plan Year (if such Plan Year began before March 1, 2015) to correct. For all others, the new rule is effective April 28, 2015. Although we need to wait for HHS to define what substantial means, we do know that the added “weight” will add cost to the coverage.