The Wall Street Journal first reported on the concept of “bare-bones” or “skinny plans” in May of this year (2013) - http://online.wsj.com/article/SB10001424127887324787004578493274030598186.html.
Then just this week (August 25, 2013), Kaiser Health News (KHN) published a story on the idea - http://www.kaiserhealthnews.org/Stories/2013/August/26/bare-bones-health-insurance-health-law.aspx .
And since I have suggested the strategy to two of our
clients to date (and mentioned it to untold numbers of colleagues and
prospective clients), I thought I would make it the focus of this week’s blog
post. Depending on the employer, the particular situation, or the industry, this strategy has the potential of saving affected employers thousands of dollars per year in associated ACA penalties. This strategy is better suited for certain employers than others; for example, employers with high numbers of employees that traditionally don't elect health insurance coverage. Or from an industry standpoint, think restaurants, staffing companies, nursing homes, hotels, just to name a few. So, here goes…
Since the passage of the Affordable Care Act (ACA) in 2010, the term “unintended consequences” has been bantered about. The fact is, when congress drafts and passes a law that consists of over 2,000 pages, and releases regulations at a rate of 1,000 pages per page of said law, there are bound to be oversights, mistakes, loopholes, ergo…unintended consequences. One such oversight relates directly to the employer mandate/pay or play provision. In order to understand the compliance strategy discussed here (affecting employers with 50 or more full time employees/full time equivalents), readers may want to familiarize themselves with the two different types of penalties associated with the employer mandate: (i) the “sledgehammer” penalty (i.e., $2,000 per employee starting with the 31stfull time employee); and (ii) the “tack hammer” penalty (i.e., $3,000 per affected employee that purchases subsidized coverage on a public exchange). My June 19, 2013 blog post addresses the two types of penalties in much more detail - http://sstevenshealthcare.blogspot.com/2013/06/understanding-employer-shared.html
According to the aforementioned WSJ (May 20, 2013) and KHN (August 25, 2013) articles addressing the ACA compliance strategy known as “bare-bones” plan offerings, an employer can avoid the $2,000 sledgehammer penalty altogether, merely by offering a plan consisting of Minimum Essential Coverage (MEC). Note: Unlike fully insured plans, partially self funded plans are not required to offer the 10 essential health benefits starting in 2014. MEC, as defined by the ACA (sorry for the overuse of acronyms) is coverage for 100% of the [63] Centers for Medicare and Medicaid Services (CMS) listed preventive and wellness services ONLY. In other words, insurance coverage that only covers ACA/CMS approved preventive care, nothing else! Such plans, which again are self insured, cost approximately $60 per month, and can be cost shared with employees at any chosen amount or percentage. In order to beef these plans up to provide some level of coverage for non-preventive care (e.g., hospitalization, outpatient care, therapy, physician office visits, prescription drugs, etc.), another approach is to “wrap” a limited benefit plan, sometimes called a mini-medical or gap plan, around the MEC/bare bones plan. These fully insured limited benefit plans are significantly lower in cost than the better known and more popular major medical plans that have become so prominent, if not expensive. (Note: a recent BenefitsPro article cited increased interest in these plans - http://www.benefitspro.com/2013/08/27/ppaca-fueling-gap-insurance-sales.) And employers can opt to have employees pay all or a portion of the cost of the limited benefit/wrap plan.
I should also point out that the bare bones/MEC approach does not avoid the $3,000 tack hammer penalty. But the tack hammer penalty presents far less exposure, and is calculated on a per occurrence basis, rather than the collective basis with which the sledge hammer penalty is calculated (e.g., 100 – 30 = 70 x $2,000 = $140,000). An employer can avoid the tack hammer penalty by offering an additional plan option that meets the ACA's minimum coverage (i.e., 60%) and affordability (i.e., employee share of the premium is no more than 9.5% of W-2 income) tests.
But wait…there’s more! In addition to assisting employers in avoiding the $2,000 employer mandate penalty, employees that purchase a low cost, “bare bones/MEC” plan will avoid the INDIVIDUAL MANDATE penalty, which takes effect in 2014.
And finally, although the reporting and penalties associated with the ACA’s employer mandate have been delayed until 2015, it is wise to plan and act as if the mandate was not delayed.
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