HHS Closes Loophole on Skinny Plans - Group Health Plans Must Cover Hospitalization

Group health plans that fail to cover hospital care will not meet the minimum value health plan standard under the Affordable Care Act, according to a Department of Health and Human Services (HHS) notice issued Tuesday. The announcement impacts larger employers who were designing "skinny plans" to offer bare bones coverage to employees while avoiding the employer shared responsibility fee.

Background

Under the Affordable Care Act (ACA), insurance sold to individuals and small employers is required to cover “essential health benefits,” including hospital services. Large employers are not subject to this ACA requirement, but it was assumed that using the minimum value calculator (testing whether insurance pays at least 60 percent of expected medical costs for a given plan) would require hospital care. As it turns out, a company could design a bare bones self-insured health plan that both met the minimum value requirements and excluded hospital care.

In Notice 2014-69, HHS and the Treasury Department say that insurance options that don't cover both inpatient services and physician services will be considered noncompliant with the ACA.

Modern Healthcare reported on the notice, saying that "hospitals and health economists called the calculator's initial design flawed, saying it allowed health plans that were akin to homeowners insurance that excluded coverage for a house burning down."

As quoted in Modern Healthcare, Zane Benefits President Rick Lindquist explains, “Any large-employer, self-insured skinny plan that has been designed to take advantage of this loophole will likely need to be redesigned if the employer wants to avoid fines related to the employer shared-responsibility requirement.”

What You Need to Know About the Notice

According to the notice:

1. Plans without inpatient hospital and physician services coverage will not meet minimum value.

2. Employers that relied on the HHS minimum value calculator AND who have plans predating this guidance date of November 3, 2014, will not be penalized but their plan will need to change at the end of the contract.

3. Employees who have an offer of coverage that is minimum value but doesn't include hospitalization will still be able to access premium tax credits.

4. Employers who have these plans must amend communications that state that an employee cannot access premium tax credits.

HHS said to expect to release final guidance around March 1, 2015.