Are regulators putting the squeeze on skinny plans?
By Andrew Braswell
At our recent Executive Forum in San Diego, I spoke with senior management of staffing firms ranging from multinationals to those just nearing the 50-employee threshold for the Afford- able Care Act’s (ACA) play-or-pay employer mandate. All of these conversations made one thing clear: when it comes to ACA, confusion still reigns.
Some firms were prepared to comply with the law by the original implementation date of Jan. 1, 2014. Others held off, feeling justified when that date was pushed back, and even more so when the transition guidance lowered the bar for compliance until 2015.
Regardless, there is a general consensus forming that wholesale repeal of the law is highly unlikely.
In addition, there was a high level of interest in so-called skinny med, or limited benefit plans, particularly among firms in the commercial staffing space. This is important because these bare-bones insurance products, which we detailed for our corporate members in a July 2013 report, limit the cost of coverage by restricting what they cover, typically amounting to preventive services, a specified number of annual visits to the doctor, and a generic prescription drug benefit
Penalties. Skinny plans appear to meet the standard of minimum essential coverage, meaning offering such a plan to at least 95 percent of full-time workers (70 percent under the transition relief for 2015) is sufficient to avoid the first, more onerous penalty of $2,000 per year calculated against the total number of full-timers. However, they clearly do not meet the second penalty’s standard of minimum value, leaving the employer exposed to an annual assessment of $3,000 on a per-case basis for any full- time employee who receives a subsidy to purchase insurance through the exchange. The viability of this strategy depends on the assumption that few employees will do so, with most either accepting the low-cost coverage, or eschewing coverage altogether in order to maximize take-home pay.
One key point in the February final regulations seems to have gone largely unnoticed but could diminish the viability of the skinny plan strategy: The originally proposed regulations implied that employers would not face penalties during the initial three month grace period for enrolling new full-time hires or, for “variable hour” workers, the measurement and stability periods under the look-back methodology. The regulatory update introduces the term “limited non-assessment period for certain employees” to describe these intervals, and adds the caveat that, in order for the employer to avoid penalties for those months, the ensuing offer of coverage must provide minimum value.
Thus, if a staffing firm intends to offer only a skinny plan, and utilizes the maximum 13 months for its combined measurement and administrative periods, this new caveat increases the penalty exposure by up to $3,250 per employee who obtains subsidized exchange coverage. While this may be a rare occurrence in practice, the risk exposure is significant.
One potential response to this provision is for employers to automatically enroll workers in the limited benefit plan, with proper notification and opt-out provision. This would preclude those employees who do not opt out from receiving exchange subsidies and triggering penalties. The annual cost of the skinny plan to the employer — $1,000-$2,000 according to estimates we have received — is lower than the penalty, is paid with pre-tax dollars, and provides a more predictable exposure.
Many details surrounding the employer mandate remain unresolved, and we anticipate further guidance will continue to be issued through implementation and beyond.
Andrew Braswell is a research analyst at Staffing Industry Analysts. He can be reached at abraswell@staffingindustry.com.
Disclaimer: The intent of this analysis is to provide you with general information regarding options for ACA compliance. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be addressed by your general counsel or an attorney who specializes in this practice area.
