Skinny Plans Meet Their Demise: How Intact is the Healthcare Parachute?

The Department of Health & Human Services issued a final ruling on the employer-sponsored health plans that fail to cover inpatient hospitalization. They have said these plans do not meet the minimum value standards as set by the Affordable Care Act (ACA aka Obamacare).

The rule states that these employer plans must include inpatient coverage and physician coverage. This ruling is important for employees who might rely on these skinny plans, thinking they have comprehensive coverage.

No one wants to find out that the parachute isn’t all there– after they have jumped from the plane.

The other side of the coin is that healthy low income workers were able to have a relatively inexpensive plan and not have to pay for benefits that they might not use.

Some employers were relying on these plans in hopes that they would avoid fines by providing these skinny benefits to their employees.

Transitional relief will be available to these plans. If a qualifying employer has already enrolled or began to enrollment as of 11/4/2014. the employer mandate tax penalty is to be forgiven through the plan year that begins on or before March 1, 2015. This is a relatively short time frame, but will give some relief to the “skinny plans”.

These plans were often found in the food service industry or retail firms. The argument was that these plans met the 60% minimum value test. It has been my opinion that these plans simply did not meet the intention of the ACA. How can you provide benefits that do not include hospitalization when the risks are so high? We have all heard stories of hospital bills that cost hundreds of thousands of dollars. Isn’t that why we have insurance? We want to protect against catastrophic risk.

I have a client who had no insurance and incurred a $200,000 hospital bill after having been in a coma for about a month. After much negotiating with the hospital, it was reduced to around $75,000. They were forced to sell the two rental properties that they had been hoping to use as their retirement income.

They are now in their early 60’s and have dramatically reduced their retirement plans. Fortunately for them, the ACA (Affordable Care Act aka Obamacare) will allow them to have some peace of mind as they can afford the subsidized premiums. This will hopefully take them through to age 65 and Medicare.

As of my press deadline, the Supreme Court will be hearing arguments that could undermine this new financial security for them and others who have relied on subsidies to cover a portion of their premium.

The latest challenge is over four words: “established by the state”. Essentially if the plaintiffs win the argument subsidies for those that bought coverage on the federal exchange, rather than an exchange “established by the state” would not be allowed their subsidy. Initially this would not effect a state based exchange like Covered California.

However, it’s likely that the state based exchanges would feel the aftermath of the total disruption of the market. The insurance companies are like a huge ocean liner that have been tossed about in a storm as the try to navigate and comply with the myriad of changes that continue to hit them from all sides.

One cornerstone to the market stabilization is the mandate. Another factor stabilizing the participation is the subsidy that helps people to afford to participate the plan. Should those subsidies be withdrawn and there is a mass exodus from the market, actuaries will have to reset rates.

The insurers maintain that there is a possibility of what we call a “death spiral” in the market. Simply this means only the sick people stay in the plan and the healthy ones leave. Rates increase exponentially until the pool simply implodes, because there are not enough healthy people paying premiums to support the sick ones.

I find it interesting that the “big business” community is not backing this challenge. While I can see sound business reasons for them to want the subsidies to continue, I can’t help but wonder how much of this is simply fatigue. The next few weeks will be very interesting.

Correction to prior column: Individuals MAY self-enroll for the Informed of Tax Penalty Risk special enrollment.

Margaret Beck is a Redding-based licensed insurance broker who can be reached at 530- 225-8583. All information in her column is provided to the best of her knowledge, subject to final regulation by the respective agencies.

 Beck’s column is also published in the Redding Record Searchlight.

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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