SI Review: December 2013

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Benefit of Counsel: The Skinny on Skinny Plans

‘Minimum essential coverage’ plans will require continual employee education

By George Reardon

The Affordable Care Act’s employer mandate may have been delayed by a year, but come 2015, staffing firms will have had to decide whether to offer insurance or pay the penalties. For the moment, at least, there’s a middle-ground option that many staffing firms are considering.

A loophole in the Affordable Care Act allows employers to avoid the heaviest “employer mandate” penalty of $2,000 per all full-time employees per year by offering so-called “skinny plans” -- a group health plan designed to cover only non-catastrophic health exposures like wellness benefits, preventive care and certain routine medical care. Staffing firms planning to offer skinny plans hope the savings from avoiding the “no offer” penalty will outweigh the combined cost of the skinny insurance and penalties generated by employees who reject the skinny insurance and obtain subsidized coverage from state exchanges.

But the plans are not without risk. For example, some employees who accept the employer’s insurance may not fully understand the limited scope of its coverage and believe that it is comprehensive health insurance.

Repackaged Wellness Plan

Before ACA, employers would not have portrayed the benefits of skinny plans as health insurance; they would have called them wellness benefits. Most employees aren’t very knowledgeable about health insurance. Few of them will understand what a skinny plan is or, more important, what it is not. Such plans will certainly not be called “skinny” but will more likely be called “Minimum Essential Coverage” plans. That phrase, taken from the ACA statute, certainly sounds like comprehensive coverage, aggravating the employee’s perception problem.

Employers will announce that they are offering employees an ACA-compliant health insurance program. It is perfectly predictable that many employees will think that skinny plans provide traditional comprehensive health insurance, no matter what the official disclosures to them say. After all, isn’t that one of the main purposes of the law and one of its most frequently cited achievements?

A catastrophic health expense would be a cruel way for these employees to learn about the limits of their coverage.

Explaining the Gap

We have seen this type of situation before, in connection with accidental death insurance. Regular life insurance pays off regardless of the cause of death, with a few exceptions like suicide and war. Accidental death insurance pays only for death caused by carefully and narrowly defined accidents, which are very rare. Consequently, accidental death insurance is so cheap that some banks give away $20,000 policies — instead of toasters — just for opening checking accounts, and some employers provide it as an employee benefit that generates a lot of bang for the buck. Some people with large face amounts of accidental death coverage think that they have regular life insurance, and neglect to deal with the real harm that their families would suffer from their premature deaths from the most likely causes.

Skinny plans will foster a similar understanding gap. Sponsors of skinny plans should plan to explain to their employees continually and in plain language that such plans are not the equivalent of traditional health insurance and that they need to consider obtaining comprehensive catastrophic coverage through state exchanges or elsewhere. Sponsors may feel that directing employees to the exchanges would be counterproductive to their skinny plan strategy, but allowing employees to misunderstand their health coverage could produce serious employee relations issues and conceivably even legal ones.

George Reardon is special counsel with law firm Littler Mendelson. greardon@littler.com

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