The “Skinny Health Plan” Discussion

As the Affordable Care Act (ACA) Employer Shared Responsibility (Employer Mandate) requirements were reviewed and analyzed in 2013, discussions emerged about the use of “Skinny Health Plans” to satisfy the minimum essential coverage requirement. Should employers be including these limited coverage low cost plans in their benefit planning discussions? The rising cost of employee medical plans has been a source of concern and discussion topic among business leaders for many years. Now the ACA has added to the cost and created new compliance concerns. The Employer Mandate comes with an especially high price tag for employers who don’t currently offer benefits to all of their full-time employees and those with part-time employees who could be reclassified as full-time. Skinny Health Plans could be an option for employers looking for creative ways to minimize cost while managing compliance with new regulations.

What are the Employer Shared Responsibility requirements?

The employer mandate, which was postponed until 2014, applies to employers with 50 or more full-time employees and includes two potential penalties.

  • The first, and stronger of the two, imposes a penalty of $2,000 per full-time employee (less 30) if the employer fails to offer all full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage and at least one full-time employee purchases coverage and receives a subsidy through a public Exchange.
  • The second imposes a penalty of $3,000 per full-time employee receiving an Exchange subsidy if offered coverage does not provide minimum value or is not affordable. The “minimum value” requirement is defined as the plan paying for at least 60% of expenses covered by the plan. The “affordable” component is defined as the cost for employee only coverage must not exceed 9.5% of income.

What is a Skinny Health Plan?

Skinny or Low Cost group health plans are an off-shoot of mini-med or limited benefit medical plans. Mini-med plans provided broad benefits but limited the annual dollar amount of coverage. As a result of the ACA these plans have been discontinued. This led to the development of plans without annual dollar limits but with limited categories of coverage. For instance a Skinny Health Plan may provide 100% coverage for preventive services and include a wellness benefit as required under the ACA but exclude hospitalization coverage. The low level of coverage has a corresponding low cost, typically less than $600 per year.

So, how could a plan like this qualify as “minimum essential coverage”? Minimum essential coverage is often confused with another ACA term “essential health benefits” which details coverage that must be included in small group and individual policies. Minimum essential coverage refers only to the source of coverage, not the level of coverage. The terms Group Health Plan and Medical Care both have very broad ERISA definitions. A skinny plan would not meet the minimum value requirement but could meet the requirement of offering a group health plan to all full-time employees. It appears enrolling in an employer sponsored skinny health plan would also satisfy the individual mandate which requires everyone to be covered under a health plan. Employers who choose to offer a skinny plan are betting very few employees will choose to purchase coverage through a public exchange due to the high premium cost even when the employee qualifies for a subsidy.

The Discussion Continues

On one side of the debate are those advocating for all employers to offer comprehensive medical benefits to all employees. Their hope is that future guidance includes skinny plans in the disqualification category with mini-med plans. On the other side are those who believe the regulations were intentionally structured to provide large employers with a low cost compliance option. While the Treasure Department has informally commented that it appears a properly designed skinny plan would meet ACA requirements, no formal guidance has been provided. All employers will need to work with their advisors to determine which option is best for them: offering no health plan to all or certain employee classifications, offering a skinny plan knowing it doesn’t meet the minimum value requirement, or offering a full-coverage affordable plan to all full-time employees. Each has associated costs and risks that must be fully considered.

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About Susan Sanders

Susan brings consulting, operational, and financial knowledge to the J.W. Terrill team with 25 years of employee benefits experience gained on the consulting and carrier sides of the industry. She is a graduate of the University of Southern Mississippi and holds a Certified Employee Benefits Specialist designation.

View all posts by Susan Sanders

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