HHS warns employers about skimpy health plans

By Jerry Geisel, Crain News Service

WASHINGTON (Nov. 25, 2014) — The U.S. Department of Health and Human Services (HHS) is warning employers that group healthcare plans that do not provide coverage for inpatient hospital and physician services will not pass the healthcare reform law's “minimum value” test.

HHS is the second federal agency to issue the advisory.

A plan that denies such coverage “is not a health plan in any meaningful sense and is contrary to the purpose of the minimum value requirement,” HHS said Nov. 21.

Plans that omit such coverage “fail to meet universally accepted minimum standards of value expected from, and inherent in the nature of, any arrangement that can reasonably called a health plan intended to provide the primary health coverage for employees,” HHS said in its proposed regulations.

The agency, following an earlier IRS announcement on the issue, said it will propose rules that will require healthcare plans to provide “substantial” coverage of both inpatient hospital and physician services in order to satisfy the Patient Protection and Affordable Care Act (ACA) minimum value standard.

HHS said it will seek public comment on how to determine if a plan offers “substantial” services.

How HHS defines “substantial” could affect employers beyond those offering ultra-skimpy plans, observers say.

“Depending on the definition they use, the implications could be much broader than the targeted plans that were viewed as abusive. So final regulations could affect employer plan designs that already cover hospital and physician services but don't meet the ‘substantial' requirement,” said Rich Stover, a principal with Buck Consultants at Xerox in Secaucus, N.J.

The two agencies' announcements involve an ACA provision that imposes, starting in 2015, stiff financial penalties on employers whose plans do not pass a minimum value test.

To pass that test, plans must pay for 60 percent of covered services. If a plan does not pass the minimum value test, lower-income employees — those earning up to 400 percent of the federal poverty level — can go to public insurance exchanges to obtain coverage, with the federal government subsidizing their premiums.

In that situation, employers are liable for a $3,000 penalty for each employee who obtains the subsidized coverage.

Likely due to a flaw in a government online calculator, low-cost plans that excluded coverage for inpatient services were able to pass the minimum test, benefit experts said.

That, in turn, fueled interest in the plans, which cost about half the price of more traditional plans, especially from employers who have not offered coverage and, starting in 2015, faced an ACA mandate to offer coverage or be hit with the $3,000 penalty.

However, like the IRS, HHS said employers that prior to Nov. 4 entered into a “binding written commitment” excluding coverage for inpatient hospital and physician services or began to enroll employees in the plans could offer the plans through the end of the next plan year.

In that situation, the employer would not incur a penalty, even if eligible employees opted for subsidized coverage through the public exchanges.

This report appeared on the website of Crain's Business Insurance magazine, a Chicago-based sister publication of Tire Business.