Thursday, January 23, 2014

How Large Employers and Self Funded Plans Can Circumvent Most of Obamacare with Mini-Meds

This is from Adrianna McIntyre at the Incidental Economist:
The fact that some employers will continue to offer mini-med insurance plans isn’t new news. The Wall Street Journal broke this back in May—and back then, I was baffled. I followed up with a colleague, who very patiently walked me through the loophole left in the law.
Imagine insurance plans fall into one of two buckets: Bucket A holds the individual and small-group markets; Bucket B captures the large-group market and self-insured plans (usually only large employers self-insure, but small businesses are increasingly looking to self-insurance to ease regulatory pressures). 
Bucket A is subject to all of the rules you’ve come to associate with Obamacare: they have to offer preventive services without copay, must cover essential health benefits, annual and lifetime limits on coverage are forbidden, and out-of-pocket (in-network) spending can’t exceed $6,350 for individuals ($12,700 for families). At a minimum, these plans meet a 60% “actuarial value” threshold, the definition of bronze plans. Legally, insurers cannot offer a plan that fails to meet these standards on the individual and small-group markets. Every exchange plan falls into this bucket, as do a number of off-exchange plans. 
Coverage is regulated less stringently for Bucket B. Large-group** and self-insured plans still have to offer copay-free preventive care, but they aren’t legally obligated to offer additional benefits; plans can be sold even if they skimp on EHBs. And those plans don’t need to meet a 60% AV minimum. Here’s the real wrinkle: out-of-pocket spending protections only apply to benefits covered by the plan. In theory, a mini-med plan could cover the bare minimum in preventive services, and nothing else. However, offering—and carrying—subpar coverage has implications for the employer and individual penalties. 
Employers with plans that fall into Bucket B essentially have three options. 
  • Offer compliant coverage. Most employers have always offered coverage that generally complies with requirements laid out in the ACA (98% of individuals enrolled in employer sponsored insurance have plans with an actuarial value that meet or exceeds the “gold” level on exchanges). Employees offered compliant coverage from an employer are not eligible for exchange subsidies.  
  • Offer “loophole” coverage. Employers that offer large-group or self-insured plans have the freedom to purchase plans that don’t comply with all of the ACA’s intended protections. However, if the plan doesn’t offer a minimum actuarial value of 60%, employees below 400% FPL are eligible for subsidies. The employer could be slapped with the “light” version of the employer penalty, $3,000 per employee who opts into the exchange. Individuals who carry subpar coverage might also be subject to the individual mandate penalty 
  • Offer coverage that doesn’t even meet loophole standards—or no coverage at all. If a large employer’s plan fails to meet the barest preventive care requirements, or if a large employer doesn’t offer coverage at all, they’re subject to a $2,000 penalty per full-time worker***.
This week’s WSJ story introduces a new twist: employers could get around the employer penalty associated with skimpy coverage if they offer a compliant plan alongside a mini-med option. Because employees are offered minimum essential coverage through their employer, they’re ineligible for tax credits; those are the trigger mechanism for the employer penalties. 
This strategy might work for some companies; the WSJ story features a security firm, where security-guard employees essentially act as their own young, healthy, low-income risk pool—characteristics that make bare-bones plans broadly appealing (if insufficient for serious health events). However, given a more heterogeneous risk pool, this move invites adverse selection into the more generous plan. 
The loophole was probably an oversight—but one borne out of an intentional decision to leave self-insured and large-group plans largely untouched by regulatory changes, appeasing the interests of important stakeholders. In other words, it’s another symptom of our wildly counterproductive tendency to cling to the status quo in health policy. ...
**Large group plans are still subject to state-level coverage requirements that predate the ACA. (Thanks to Max Fletcher for the reminder.) 
***For the very precise, the $2,000 penalty-per-employee is actually assessed against the number of full-time employees less 30.  

Timothy Jost, who probably knows the legal quirks of the ACA better than anyone, very helpfully offered some clarifications about how the mini-med loophole works. Below is his email to me (shared with permission).
Large group and self-insured plans are also subject to the lifetime and annual dollar limit cap. They cannot, therefore, legally offer fixed dollar indemnity policies as medical coverage. The WSJ article is wrong on this. Fixed-dollar indemnity plans can be offered as excepted benefit plans as long as payments are based on time periods rather than services. Under recent guidance, fixed dollar indemnity policies can also be offered in addition to comprehensive coverage as excepted benefits. I blogged about this last week at HA. But they cannot be offered alone as minimum essential coverage (and excepted benefits are expressly not MEC). 
An employer could offer, that is, a plan that covered preventive services and 2 days of hospital coverage and 5 physician visits and meet the MEC requirement. An employer cannot, however, meet the MEC requirement with a fixed-dollar indemnity policy.
Another issue is the discrimination in favor of highly compensated employee prohibition. The agencies have yet to issue regs on this, but the requirement is in effect. An employer that had all of its executives signed up for Cadillac coverage but its minimum wage employees in mini-meds could conceivably be found to violate that prohibition. 
For more detail, you can see Jost’s posts describing guidance on fixed dollar indemnity plans over at the Health Affairs blog, here and here.