We’ve railed against “mini-med” health plans many times here on our blog, and have spoken with lots of people over the years who have found themselves stuck with medical bills because their mini-med had such low benefit limits. We’ve even had one client who found himself stuck paying for a mini-med until the following open-enrollment period, even after his plan had reached its very low benefit maximum.
We are not fans of mini-meds, and were glad that one of the provisions of the ACA was to do away with lifetime and annual benefit maximums on essential health benefits. For the past couple of years, most sources that report on healthcare reform (including us) have been explaining that mini-meds are going away in 2014. Not everyone was in agreement that this was a good thing – some people expressed the view that businesses that hire large numbers of minimum wage workers would be switching to more part-time employees or suffering dire financial consequences. But the general consensus was the mini-meds would be a thing of the past once all of the benefit maximum waivers that HHS had granted ran out.
Alas, that doesn’t appear to be the case. Over the last few weeks, I’ve seen several articles explaining how a new type of “skinny” health insurance policy might take the place of mini-meds in the large group market for employers in the retail and food industries who typically hire minimum wage employees. Two of the most thorough articles I’ve seen on the subject are by Avik Roy at Forbes, and Wendell Potter at HealthInsurance.org – they’re both worth reading (and I recommend following HealthInsurance.org on Facebook if you want to keep up with healthcare reform updates – they’ve got answers to pretty much any question you have).
To summarize, the ACA focused almost entirely on reforms in the small group and individual market. We’ve been talking about those reforms for three years now, and for the most part, they’re working well to improve the safety net that health insurance should provide. The primary reform in the large group market was the employer mandate, which requires employers with more than 50 full time-equivalent employees to offer health insurance or pay a penalty. This provision of the law has been delayed until 2015, so it’s even more of a back-burner issue right now as we head into open enrollment in the individual market and the opening of the exchanges for individual and small business coverage.
But although the idea was to make sure that large employers offered good qualify coverage in order to avoid paying a fine, it appears that some large employers will opt for the fine instead. The penalty is steep if a large employer doesn’t offer any coverage at all: if even one employee (of a business with at least 50 employees) seeks coverage in an exchange and gets a subsidy, the employer has to pay a penalty of $2000 per employee (the first 30 employees are waived). So if a company has 90 employees, doesn’t offer any coverage, and one employee gets subsidized coverage in the exchange, the company would pay $120,000 ($2000 times 60 employees). On the other hand, if the company offers bare bones health insurance that doesn’t meet the actuarial value requirements, the penalty is $3000 per employee, just for the employees who end up getting subsidized coverage in the exchange (employers have the pay the lesser of the two options in this case).
It’s likely that the second option will end up being lower. For our 90-employee establishment that I described above, if they offer “skinny” health insurance that doesn’t meet the minimum requirements, they could have up to 39 employees obtain subsidized exchange coverage and the penalty would still be lower than the penalty for not offering coverage at all. These “skinny” plans can cost under $1000/year, and employers typically pass on a good portion of the premiums to the employees (who might think that they’re getting real health insurance and not know the details of the plan until they need significant care). So even if the employer has to pay an additional $300/year per employee for the health plan ($27,000 total for 90 employees), they would still have room for $93,000 in penalties before they reached the amount of penalty for not offering coverage at all. That’s 31 employees getting subsidized exchange coverage. Consider that some of the employees are likely under 26 and might still be on a parent’s plan, others might have the option for coverage under a spouse’s plan, and plenty might just assume that their employer is taking care of them and offering quality health insurance without really understanding the terms of the coverage. There’s a fairly good chance that the employer will come out ahead financially by offering junk health insurance and paying the $3000 penalty for each employee who gets subsidized health insurance.
These plans are forbidden in the individual and small group markets, but it appears that in the large group market, the only requirement is that a plan has to cover preventive care and be more substantial than just a dental/vision plan. But a policy that covers just dental, vision and preventive care is not worth much if you get become seriously ill or injured. Hopefully lawmakers will enact a patch on the large group provisions of the ACA to make sure that these plans do not become widespread in the industries that hire low-wage workers.
It would be better for the employees if these industries did not offer health insurance at all, so that the employees would be more likely to seek out quality coverage in the exchanges. One of the main problems with mini-meds and “skinny” health insurance is that most people are not particularly well-versed in the technicalities of health insurance policies. People – especially entry level workers – are likely to assume that their employer has selected a good plan and that they are well covered if they opt to enroll in it. If the plan has a low premium, that makes it even more attractive. And unfortunately, a lot of people covered by these plans might not find out until after they need care that something as basic – and expensive – as hospitalization isn’t covered.