Death of bare-bones health plans may be greatly exaggerated

August 23, 2013

Consumer Reports calls it “junk health insurance.” A California regulator uses the term “skeleton policies.” To an expert from the American Cancer Society, they “are a perfect example of why health care reform is so crucial.”

They are bare-bones health plans, and critics say they could leave consumers who become seriously ill on the hook for tens of thousands of dollars in medical costs. The Affordable Care Act was supposed to do away with them.

“The good news is that these plans will be a thing of the past in 2014,” Steve Larsen, then a high-ranking Department of Health and Human Services official, told reporters two years ago.

The law bars “mini-med” plans, which cap annual benefits at, say, $2,000 — even though the average hospital stay costs $14,000 — and were commonly offered to employees by restaurant chains and retailers.

But now a new type of bare-bones policy may take their place.

Consumer advocates, employers and insurers say that unless regulators move to block them at the last minute, plans with limited benefits will proliferate, especially for low-paid workers, because of how the law and the regulations are worded.

Proposed and final rules issued this spring surprised many by failing to bar large employers from offering insurance policies that could exclude benefits such as hospitalization. Offering bare-bones policies may result in some fines, but that expense could be less than the cost of offering traditional medical coverage.

For large employers, “the feds imposed no minimum standard on how skimpy that coverage can be other than to say, in essence, it’s got to be more robust than a dental plan or a vision plan,” said Ed Fensholt, a senior vice president at insurance broker Lockton Cos. “We had customers looking at offering some relatively inexpensive and skimpy plan designs to satisfy the individual mandate at a modest cost [to employees] — and to employers as well.”

“There is a lot of interest” from retailers and others that have offered limited-benefit, or mini-med, coverage in the past, said Joan Smyth, a partner at benefits consultant Mercer. She’s gotten so many inquiries since the Wall Street Journal reported on the issue in May that limited-benefit plans are “my favorite topic,” she joked.

Officials for McDonald’s, Ruby Tuesday, Darden Restaurants and other large employers that have offered limited- benefit coverage in the past declined to comment or did not respond to questions about their plans. Mini-med policies were typically offered because some coverage was seen as better than none — and the premium costs were far lower than for traditional coverage. This summer, the Obama administration gave businesses with 50 or more employees another year, until 2015, to comply with the requirement that they offer insurance or pay a fine.

“I think you will continue to see employers in many industries look to carefully calculate their strategy for compliance” by considering limited- benefit plans, said Neil Trautwein, employee benefits lawyer at the National Retail Federation. “As always, the interest is to limit cost increases.”

Small businesses barred

The bare-bones plans cannot be offered to small businesses with fewer than 50 workers, or to individuals buying coverage through the new online marketplaces that open for enrollment Oct. 1. But benefits experts expect some larger companies that buy outside the marketplaces or that self-insure to consider them.

The Obama administration says that workers offered such coverage may qualify to shop in the marketplaces and to buy subsidized plans.

“Individuals who are not already offered quality, affordable health care can enter into the marketplaces and choose a health insurance option that works for them,” said Sabrina Siddiqui, spokeswoman for the Treasury Department.

About 2 million Americans are covered by mini-med policies. And Aetna and Cigna are among the largest issuers of them. Asked whether Cigna will offer new versions next year, a company spokesman said that “we are currently evaluating the types of plan designs that will meet the needs of employers and employees.” Matt Wiggin, an Aetna spokesman, said the insurer is “still assessing” customer needs.

‘Mini-meds have morphed’

Under the new rules, capping the dollar value of annual benefits isn’t allowed, but excluding entire categories from coverage — such as hospital stays — is permitted, benefits consultants say. That’s another way of keeping costs down.

The law says only that large-employer policies must cover preventive care such as blood pressure tests or vaccines with no co-pays for patients. So the plan could cover dental, vision and preventive cancer screenings, but possibly not the hospital care needed if a person was diagnosed with an illness.

The health act requires policies to include coverage for 10 broad categories of “essential health benefits,” such as hospitalization and mental health services, but that applies only to plans sold to small businesses and individuals. Larger firms and self-insured employers are exempt.

Benefit advisers say some retailers and restaurant chains are considering limited-benefit plans for 2014 even though the deadline was pushed back for offering coverage or facing fines.

“It seems like mini-meds have morphed,” said Lydia Mitts, a health policy analyst for Families USA, a consumer advocacy group.

Employers offering these sorts of plans do face some risks, experts said.

If a large employer doesn’t offer “minimum essential coverage,” it would potentially be liable for fines of $2,000 per full-time worker after the first 30 workers. Under the wording of the health law, however, skinny plans appear to qualify as minimum essential coverage.

If employers don’t offer “comprehensive” policies — defined as covering at least 60 percent of health expenses — they must pay $3,000 for each worker who receives subsidies to buy coverage. But employers see that potential expense as far lower than the cost of offering all their workers more robust coverage, experts said.

Some businesses are betting that few workers will go to the government-run marketplaces to seek subsidized coverage, opting instead for the skinny plan “which costs less than the penalty,” said Dania Palanker, senior counsel for the National Women’s Law Center in Washington.

Signing up for a company skinny plan would fulfill a consumer’s obligation to be covered under the health act.

Advocates are pressing employers to offer more comprehensive policies.

“People need to be covered for hospitalizations,” said Mitts of Families USA. “It’s important for employers to do the right thing.”

Kaiser Health News (www.kaiserhealthnews.org) is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization that is not affiliated with Kaiser Permanente.

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