Bare-bones plans will be few and far between

June 1, 2013

Employers look for loopholes but most will keep coverage plans in tact

Employers are considering alternatives-okay, let’s call them “loopholes”-to the Patient Protection and Affordable Care Act provisions. The latest one I’ve come across is the bare-bones coverage strategy.

Here’s how it works.

A large employer (remember that’s 50 full time workers or more) offers its employees a weak coverage plan that might cover preventive services and generic drugs, for example, but does not cover surgery. The employer knows full well that the package is below the minimum standard of 60% actuarial value.

Assume a lot of workers need better coverage, so they go to the exchanges to buy their own health plans and probably end up with subsidies. Now the employer must pay a penalty of $3,000 for each of those subsidized employees. To the employer, this is a better deal than paying for superior benefit packages for everyone.

Had the employer opted out of coverage entirely, it would be paying a guaranteed $2,000 penalty for nearly every worker, regardless of where the workers ultimately get coverage. So a firm with low-wage employees might consider gambling on the potential $3,000 per subsidized worker in the exchanges over the guaranteed $2,000 per worker for not offering coverage at all.

Not to mention that employees who are eligible for Medicaid will not receive subsidies, which means employers will not face any penalties there.

Add it all up, and bare-bones plans are certainly a way for large employers with low-wage workers to minimize their financial obligations. Some might call it brilliant business strategy while others see it as an insult to hard-working Americans.

But what about the health reform law’s essential benefits, right? Recall that the mandate only affects full-risk plans for small business and individuals-not large employers.

I discussed this loophole with Timothy S. Jost, the Robert L. Willett Family Professor of Law at Washington and Lee University, and he tells me that policymakers likely considered this scenario and decided that nearly all employers would go ahead with a decent benefit package.

“And people in low-wage situations where the employer does not offer insurance, they’d be better off in an exchange anyway,” Jost says. “So when you get down to it, the obligation that’s placed on the employer is not that great.” By the way, the employees would actually be welcomed into the exchanges based on the fact that their employer wasn’t offering minimum value coverage: the 60% actuarial value.

Few Plans

Jost says the bare-bones plans will be quite few and far between for several reasons:

• A nondiscrimination requirement expects employers to offer the same coverage for all employees. So a bare-bones plan offered to the janitor would have to be the same plan offered to the CEO. “And the CEOs will not be too happy about that,” Jost says.

• The tax subsidy for employer coverage adds up to a lot of money. “For employers to walk away from that and expect employees to be happy is a stretch,” he says.

• Most employers need to maintain good benefits to recruit and retain workers.

Of course, the bare-bones plans seem a lot like the mini-med plans that will be driven out of town under health reform next year. It’s possible they will face future regulatory scrutiny even though federal officials say the plans technically are legal.