Health Care Reform Blog: Bare Bones" Health Plans- Are They Legal?

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You may have woken up today to media reports of large employers exploring the idea of dropping traditional health plans in favor of very limited health care plans as a way to lessen the burden imposed on large employers for failing to offer affordable, minimum value insurance coverage to full time employees.

According to an article in today’s Wall Street Journal, benefit advisers and insurance brokers are actively marketing plans to these employers that exclude certain expensive categories of benefits such as hospitalizations, surgeries and prenatal care. Employers interested in these products should be aware of the following.

  • First, these products will not be available in the small group market because the Affordable Care Act requires insurers offering coverage in the small group market to cover “essential health benefits.”
  • Second, while the Affordable Care Act does not require health plans outside the small group market to cover essential health benefits, fully-insured plans must still comply with all state benefit mandates.  Therefore, any product sold to an Iowa employer will need to cover any benefits mandated by Iowa law.
  • Third, these plans are still subject to the Affordable Care Act’s insurance market reforms meaning they cannot impose lifetime or annual monetary limits on any essential health benefits they cover and as non-grandfathered plans they would have to cover qualifying preventative care at 100%.
  • Fourth, as non-grandfathered plans they would be subject to the non-discrimination provisions in Internal Revenue Code 105(h) when the IRS lifts the moratorium on enforcement. Employers who choose to offer this product to certain employee groups while offering more traditional, higher cost coverage to other groups could be in violation of the 105(h) rules prohibiting discrimination in favor of highly compensated employees.
  • Finally, the future of these plans is uncertain. While the current rules appear to allow such plans the regulators could close this loophole when they finalize the employer penalty provisions.