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Non-hospital plans won’t forestall possible ACA penalties — but relief offered for 2015

November 05, 2014

Federal agencies rejected a health plan setup that allowed employers to avoid ACA penalties while offering coverage to workers that, while affordable, did not cover in-patient hospitalization.

The U.S. Department of Health and Human Services and the Department of the Treasury released a notice Tuesday stating they will release new regulations in 2015 that will prevent such plans from meeting “minimum value” for the purpose of escaping penalties.

Large employers face Affordable Care Act penalties next year if they don’t provide healthcare coverage that is affordable and provides a minimum value of coverage. Such “non-hospitalization” plans did so — and at a lower cost than traditional healthcare coverage. An online calculator run by the federal government gave them the minimum-value green light.

That changed Tuesday. The agencies said they don’t believe such plans should qualify as providing minimum value despite the calculator’s finding.

“A plan that fails to provide substantial coverage for these services would fail to offer fundamental benefits that are nearly universally covered, and historically have been considered integral to coverage, under typical employer-sponsored group health plans,” the agencies wrote in notice 2014-69.

There was relief for staffing firms and other employers who signed up for such plans before Tuesday. The new regulations would not affect them in 2015 as long as their plans begin by March 1.

“This is very good news for staffing firms that were relying on MVP-type plans, particularly those on the commercial side who saw these as the only cost-effective way to avoid both ACA penalties,” said Andrew Braswell, research analyst at Staffing Industry Analysts.

Experts anticipated the federal government would put the kibosh on using such plans to qualify for minimum value, and that the “no” would come after the election. The rejection, in fact, came right on Election Day.

For a previous story, click here.

Mark Lam, VP of benefits compliance at Assurance, said this has been a known possibility, and there will be new plans developed to qualify for minimum value. Work is already taking place on alternatives.

“As an agency we have over 500 staffing clients nationally, so this has been on our radar for quite some time,” Lam said.

A potential drawback from some alternative plans is they might not be as affordable for workers. For example, there could be high-deductible healthcare plans offered with a deductible of as much as $6,000 a year and a $100 monthly premium.

Non-hospitalization plans could have offered rich coverage, albeit without the hospitalization, he said. “Non-hospitalization plans still represent an option employers can consider.  Employers can incorporate them as part of their overall approach to satisfying the mandate’s requirements.”

Penalties background

Large employers — those with more than 50 full-time workers and full-time equivalents — will face penalties if they don’t provide healthcare insurance starting in 2015.

Large employers who don’t offer any healthcare coverage at all to at least 95 percent of full-time workers (or 70 percent in 2015 under transition relief) will face the “A” penalty. It amounts to $2,000 per year multiplied by all of a company’s full-time workers. Staffing firms can avoid the “A” penalty by offering a “minimum essential coverage” plan — which are not in question. These “skinny” plans typically offer only preventive care, a specified number of doctor visits per year and, in some cases, generic prescription drugs. They don’t cover hospital stays, surgical procedures or prenatal care. Minimum essential coverage plans are projected to cost $40 to $100 per month, according to Staffing Industry Analysts.

The other possible penalty is the “B” penalty for firms that offer coverage, but that coverage is deemed unaffordable (based on a workers W-2 wages) or does not meet minimum value. The penalty amounts to $3,000 times each full-time employee who receives a subsidy to buy health insurance through an exchange. It’s the “B” penalty that non-hospitalization plans would have allowed staffing firms to avoid.

Workers

Tuesday’s notice also reported employees offered non-hospitalization plans would still be eligible for tax credits to buy insurance on a state exchange, if they qualified. This would be the case even in 2015.

Tuesday’s notice:

http://www.irs.gov/pub/irs-drop/n-14-69.pdf

Affordable Care Act page:

http://www.irs.gov/uac/Affordable-Care-Act-of-2010-News-Releases-Multimedia-and-Legal-Guidance