From The Wall Street Journal
Employers are increasingly recognizing they may be able to avoid certain penalties under the federal health law by offering very limited plans that can lack key benefits such as hospital coverage.
Benefits advisers and insurance brokers—bucking a commonly held expectation that the law would broadly enrich benefits—are pitching these low-benefit plans around the country. They cover minimal requirements such as preventive services, but often little more. Some of the plans wouldn't cover surgery, X-rays or prenatal care at all. Others will be paired with limited packages to cover additional services, for instance, $100 a day for a hospital visit.
Federal officials say this type of plan, in concept, would appear to qualify as acceptable minimum coverage under the law, and let most employers avoid an across-the-workforce $2,000-per-worker penalty for firms that offer nothing. Employers could still face other penalties they anticipate would be far less costly.
It is unclear how many employers will adopt the strategy, but a handful of companies have signed on and an industry is sprouting around the tactic. More than a dozen brokers and benefit-administrators in 10 states said they were discussing the strategy with their clients.
The idea that such plans would be allowable under the law has emerged only recently. Some benefits advisers still feel they could face regulatory uncertainty. The law requires employers with 50 or more workers to offer coverage to their workers or pay a penalty. Many employers and benefits experts have understood the rules to require robust insurance, covering a list of "essential" benefits such as mental-health services and a high percentage of workers' overall costs. Many employers, particularly in low-wage industries, worry about whether they—or their workers—can afford it.
But a close reading of the rules makes it clear that those mandates affect only plans sponsored by insurers that are sold to small businesses and individuals, federal officials confirm. That affects only about 30 million of the more than 160 million people with private insurance, including 19 million people covered by employers, according to a Citigroup
Inc. C +0.31%
report. Larger employers, generally with more than 50 workers, need cover only preventive services, without a lifetime or annual dollar-value limit, in order to avoid the across-the-workforce penalty.
Such policies would generally cost far less to provide than paying the penalty or providing more comprehensive benefits, say benefit-services firms. Some low-benefit plans would cost employers between $40 and $100 monthly per employee, according to benefit firms' estimates.
Administration officials confirmed in interviews that the skinny plans, in concept, would be sufficient to avoid the across-the-workforce penalty. Several expressed surprise that employers would consider the approach.
The low-benefit plans are just one strategy companies are exploring. Major insurers, including UnitedHealth Group
Inc., UNH +5.70%Aetna
Inc. AET -1.13%
Inc., HUM -0.54%
are offering small companies a chance to renew yearlong contracts toward the end of 2013. Early renewals of plans, particularly for small employers with healthy workforces, could yield significant savings because plans typically don't need to comply with some health law provisions that could raise costs until their first renewal after Jan. 1, 2014.
Insurers and health-benefits administrators are also offering small companies a chance to switch to self-insurance, a form of coverage traditionally used by bigger employers that will face fewer changes under the law. Employers are also considering limiting workers' hours to avoid the coverage requirements that apply only to full-time employees.
Regulators worry that some of these strategies, if widely employed, could pose challenges to the new online health-insurance exchanges that are a centerpiece of the health law. Among employees offered low-benefit plans, sicker workers who need more coverage may be most likely to opt out of employer coverage and join the exchanges. That could drive up costs in the marketplaces.
"The whole idea is to get healthy people in and not-so-healthy people in" the
marketplaces, said Linda Sheppard, special counsel for the Kansas Insurance
Experts worried that plans lacking hospital or other major benefits could
leave workers vulnerable to major accidents and illnesses. "A plan that just
covers some doctor visits and preventive care, I wouldn't say that's real
health-insurance protection," said Karen Pollitz, a senior fellow at the Kaiser
Family Foundation and former federal health official.
Limited plans may not appeal to all workers, and while employers would avoid
the broader $2,000-per-worker penalty for all employees not offered coverage,
they could still face a $3,000 individual fee for any employee who opts out and
gets a subsidized policy on the exchanges.
But the approach could appeal to companies with a lot of low-wage workers
such as retailers and restaurant operators, who are willing to bet that those
fees would add up slowly because even with subsidies, many workers won't want to
pay the cost of the richer exchange coverage.
A full-time worker earning $9 an hour would have to pay as much as $70 a
month for a midlevel exchange plan, even with the subsidies, according to
Kaiser. At $12 an hour, the workers' share of the premium would rise to as much
as $140 a month.
Firms now offering low-cost policies known as mini-meds, generally plans that
cap benefits at low levels, could favor the tactic. Companies sought federal
health department waivers to cover nearly four million with mini-meds and other
similar plans, which will be barred next year. Some employers are "thinking of
this as a replacement for the mini-med plan," said Tracy Watts, national leader
for health-care reform at Mercer, a consulting unit of Marsh
San Antonio-based Bill Miller Bar-B-Q, a 4,200-worker chain, will replace its
own mini-med with a new, skinny plan in July and will aim to price the plan at
less than $50 a month, about the same as the current policy, said Barbara
Newman, the chain's controller. The new plan will have no dollar limits on
benefits, but will cover only preventive services, six annual doctors' visits
and generic drugs. X-rays and tests at a local urgent care chain will also be
covered. It wouldn't cover surgeries or hospital stays.
Because the coverage is limited, workers who need richer benefits can still
go to the exchanges, where plans would likely be cheaper than a more robust plan
Bill Miller has historically offered to management and that costs more than $200
per month. The chain plans to pay the $3,000 penalty for each worker who gets an
But, "those are going to be the people who will be ill and need a more robust
plan," and insuring them directly could cost even more, Ms. Newman said.
Many more workers, she expects, will continue to go without insurance,
despite the exchanges and the limited plan. Currently, only one-quarter of
workers eligible for the mini-med plan take it. Ms. Newman said, "We really feel
like the people who are not taking it now will not take it then."
Tex-Mex restaurant chain El Fenix also said it would offer limited plans to
its 1,200 workers, covering doctors visits, preventive care and drugs, but not
hospital stays or surgery. "What our goal was all along was to make [offering
coverage] financially palatable for the company as a whole, so we didn't do
damage and have to let people go or slow down our growth," said Brian
Livingston, chief financial officer of Dallas-based Firebird Restaurant Group
LLC, owner of El Fenix.
Some benefits advisers worry that since the idea of the low-benefit plans is
so new, they could yet invite scrutiny from regulators, and may run afoul of
other health law requirements.
John Owens, a broker for the Lewer Agency in Kansas City, Mo., said a large
Midwestern convenience store chain is considering signing up for such a policy
and is awaiting guidance from regulators.
"What I'm telling people is, this may work, but you better have a plan B,"
said Andrew Ky Haynes, a Kansas City, Mo.-based benefits lawyer.