Employers Eye Bare-Bones Health Plans Under New Law

This article appeared last week in the Wall Street Journal and has created ALOT of buzz.  See my thoughts and comments in the next article – Reeve


Employers are increasingly recognizing they may be able to avoid
certain penalties under the federal health law by offering very limited
plans that can lack key benefits such as hospital coverage.

Benefits advisers and insurance brokers—bucking a commonly held expectation that
the law would broadly enrich benefits—are pitching these low-benefit
plans around the country. They cover minimal requirements such as
preventive services, but often little more. Some of the plans wouldn’t
cover surgery, X-rays or prenatal care at all. Others will be paired
with limited packages to cover additional services, for instance, $100 a
day for a hospital visit.

Federal officials say this type of plan, in concept, would appear to qualify as
acceptable minimum coverage under the law, and let most employers avoid
an across-the-workforce $2,000-per-worker penalty for firms that offer
nothing. Employers could still face other penalties they anticipate
would be far less costly.

It is unclear how many employers will
adopt the strategy, but a handful of companies have signed on and an
industry is sprouting around the tactic. More than a dozen brokers and
benefit-administrators in 10 states said they were discussing the
strategy with their clients.

“There had to be a way out” of the
penalty for employers with low-wage workers, said Todd Dorton, a
consultant and broker for Gallagher Benefit Services Inc., a unit of
Arthur J. Gallagher & Co., who has enrolled several employers in the
limited plans.

Pan-American Life Insurance Group Inc. has
promoted a package including bare-bones plans, according to brokers in
California, Kansas and other states and company documents. Carlo
Mulvenna, an executive at New Orleans-based Pan-American, confirmed the
firm is developing these types of products, and said it would adjust
them as regulators clarify the law.

The idea that such plans
would be allowable under the law has emerged only recently. Some
benefits advisers still feel they could face regulatory uncertainty. The
law requires employers with 50 or more workers to offer coverage to
their workers or pay a penalty. Many employers and benefits experts have
understood the rules to require robust insurance, covering a list of
“essential” benefits such as mental-health services and a high
percentage of workers’ overall costs. Many employers, particularly in
low-wage industries, worry about whether they—or their workers—can
afford it.

But a close reading of the rules makes it clear that
those mandates affect only plans sponsored by insurers that are sold to
small businesses and individuals, federal officials confirm. That
affects only about 30 million of the more than 160 million people with
private insurance, including 19 million people covered by employers,
according to a Citigroup Inc. report. Larger employers, generally with
more than 50 workers, need cover only preventive services, without a
lifetime or annual dollar-value limit, in order to avoid the
across-the-workforce penalty.

Such policies would generally cost
far less to provide than paying the penalty or providing more
comprehensive benefits, say benefit-services firms. Some low-benefit
plans would cost employers between $40 and $100 monthly per employee,
according to benefit firms’ estimates.

“For certain organizations, it may be an ideal solution to minimize the cost
of opting out,” said David Ellis, chief executive of Youngtown,
Ariz.-based LifeStream Complete Senior Living, which employs about 350
workers, including low-wage housekeepers and kitchen staff. Mr. Ellis,
who was recently pitched a low-benefit plan, said it is one option the
firm may consider to lower costs and still comply with the law, he said.

Administration officials confirmed in interviews that the skinny plans, in concept,
would be sufficient to avoid the across-the-workforce penalty. Several
expressed surprise that employers would consider the approach.

“We wouldn’t have anticipated that there’d be demand for these types of
band-aid plans in 2014,” said Robert Kocher, a former White House health
adviser who helped shepherd the law. “Our expectation was that
employers would offer high quality insurance.” Part of the problem:
lawmakers left vague the definition of employer-sponsored coverage,
opening the door to unexpected interpretations, say people involved in
drafting the law.

The low-benefit plans are just one strategy
companies are exploring. Major insurers, including UnitedHealth Group
Inc., Aetna Inc. and Humana Inc., are offering small companies a chance
to renew yearlong contracts toward the end of 2013. Early renewals of
plans, particularly for small employers with healthy workforces, could
yield significant savings because plans typically don’t need to comply
with some health law provisions that could raise costs until their first
renewal after Jan. 1, 2014.

Insurers and health-benefits
administrators are also offering small companies a chance to switch to
self-insurance, a form of coverage traditionally used by bigger
employers that will face fewer changes under the law. Employers are also
considering limiting workers’ hours to avoid the coverage requirements
that apply only to full-time employees.

“You’re looking at ways
to avoid being subject to the law,” said Christopher F. Koller, health
insurance commissioner of Rhode Island.

Regulators worry that
some of these strategies, if widely employed, could pose challenges to
the new online health-insurance exchanges that are a centerpiece of the
health law. Among employees offered low-benefit plans, sicker workers
who need more coverage may be most likely to opt out of employer
coverage and join the exchanges. That could drive up costs in the

“The whole idea is to get healthy people in and
not-so-healthy people in” the marketplaces, said Linda Sheppard, special
counsel for the Kansas Insurance Department.

Experts worried
that plans lacking hospital or other major benefits could leave workers
vulnerable to major accidents and illnesses. “A plan that just covers
some doctor visits and preventive care, I wouldn’t say that’s real
health-insurance protection,” said Karen Pollitz, a senior fellow at the
Kaiser Family Foundation and former federal health official.

Officials at the Department of Health and Human Services said they haven’t seen
widespread evidence of such strategies. They said the health law would
bring new options, including the subsidized exchange plans, to
low-income workers, and that most employers who offer coverage now
choose to provide much more robust benefits.

“Any activities  that take place on the margins by a small number of employers would not
have a significant impact on the small group or the individual market,”
said Mike Hash, director of the department’s Office of Health Reform.

Limited plans may not appeal to all workers, and while employers would avoid
the broader $2,000-per-worker penalty for all employees not offered
coverage, they could still face a $3,000 individual fee for any employee
who opts out and gets a subsidized policy on the exchanges.

But the approach could appeal to companies with a lot of low-wage workers
such as retailers and restaurant operators, who are willing to bet that
those fees would add up slowly because even with subsidies, many workers
won’t want to pay the cost of the richer exchange coverage.

A  full-time worker earning $9 an hour would have to pay as much as $70 a
month for a midlevel exchange plan, even with the subsidies, according
to Kaiser. At $12 an hour, the workers’ share of the premium would rise
to as much as $140 a month.

Firms now offering low-cost policies known as mini-meds, generally plans that cap benefits at low levels,
could favor the tactic. Companies sought federal health department
waivers to cover nearly four million with mini-meds and other similar
plans, which will be barred next year. Some employers are “thinking of
this as a replacement for the mini-med plan,” said Tracy Watts, national
leader for health-care reform at Mercer, a consulting unit of Marsh
& McLennan Cos.

San Antonio-based Bill Miller Bar-B-Q, a
4,200-worker chain, will replace its own mini-med with a new, skinny
plan in July and will aim to price the plan at less than $50 a month,
about the same as the current policy, said Barbara Newman, the chain’s
controller. The new plan will have no dollar limits on benefits, but
will cover only preventive services, six annual doctors’ visits and
generic drugs. X-rays and tests at a local urgent care chain will also
be covered. It wouldn’t cover surgeries or hospital stays.

Because the coverage is limited, workers who need richer benefits can still go
to the exchanges, where plans would likely be cheaper than a more robust
plan Bill Miller has historically offered to management and that costs
more than $200 per month. The chain plans to pay the $3,000 penalty for
each worker who gets an exchange-plan subsidy.

But, “those are going to be the people who will be ill and need a more robust plan,” and
insuring them directly could cost even more, Ms. Newman said.

Many more workers, she expects, will continue to go without insurance,
despite the exchanges and the limited plan. Currently, only one-quarter
of workers eligible for the mini-med plan take it. Ms. Newman said, “We
really feel like the people who are not taking it now will not take it

Tex-Mex restaurant chain El Fenix also said it would offer
limited plans to its 1,200 workers, covering doctors visits, preventive
care and drugs, but not hospital stays or surgery. “What our goal was
all along was to make [offering coverage] financially palatable for the
company as a whole, so we didn’t do damage and have to let people go or
slow down our growth,” said Brian Livingston, chief financial officer of
Dallas-based Firebird Restaurant Group LLC, owner of El Fenix.

Some benefits advisers worry that since the idea of the low-benefit plans is
so new, they could yet invite scrutiny from regulators, and may run
afoul of other health law requirements.

John Owens, a broker for  the Lewer Agency in Kansas City, Mo., said a large Midwestern
convenience store chain is considering signing up for such a policy and
is awaiting guidance from regulators.

“What I’m telling people
is, this may work, but you better have a plan B,” said Andrew Ky Haynes,
a Kansas City, Mo.-based benefits lawyer.

Write to Christopher Weaver at christopher.weaver@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com