The PPACA skinny plan war: 4 ways it could burn you

The agencies say they're getting ready to ban toothpick-style benefit designs. The agencies say they're getting ready to ban toothpick-style benefit designs.

Arms of the U.S. Department of Health and Human Services (HHS) and the Treasury Department are lashing out against a controversial new type of group health plan.

The Center for Consumer Information & Insurance Oversight (CCIIO) -- the HHS agency in charge of implementing the Patient Protection and Affordable Care Act (PPACA) commercial health insurance provisions -- and the Internal Revenue Service (IRS), a part of the Treasury Department, say they are writing regulations that will keep employers from using the plans to shut employees out of the PPACA public exchange system.

In IRS Notice 2014-69, CCIIO and the IRS are attacking "non-hospitalization/non-physician services plans" -- "skinny" plans that exploit gaps in PPACA benefits standards.

PPACA requires all major medical plans to cover a basic package of preventive services without imposing out-of-pocket costs on the patients, and they require major medical plans to provide coverage without imposing annual or lifetime benefits caps, but they set few specific standards for large-group plans.

Some benefits designers have suggested that having the plans could help employees avoid having to pay the PPACA tax penalties to be imposed on uninsured individuals, and might possibly reduce the likelihood that the employees with the coverage would get insurance from the PPACA exchange system and trigger PPACA employer coverage mandate penalties.

CCIIO and the IRS say they will complete final regulations on the matter in 2015 and have the regulations affect any plan created on or after Nov. 4 that fails to cover inpatient hospitalization or fails to cover physician services.

Calendar

1. Your clients may already have these plans.

The agencies are not immediately shutting down non-hospital plans that are already in effect, but it says that, when it does issue final regulations, it may shut any grandfathered non-hospital plans down at the end of those plans' plan years. 

Hands on a keyboard

2. Even if a non-hospital plan sticks around, it might not reduce the chances that the enrollees will apply for PPACA premium subsidy tax credits.

One reason for an employer to offer a non-hospital plan is to give employees just enough coverage that those who are truly cash-strapped might prefer to stick with that coverage and not even both to go to the exchange.

Another reason might be for an employer to tell the employees that the group coverage offered is enough to keep the employees from qualifying for the subsidy.

If an employer minimizes the number of employees without employer-sponsored minimum essential coverage (MEC) who apply for PPACA premium subsidy tax credits and qualify, the employer can minimize the effects of the penalties to be imposed on employers that fail to provide MEC.

But the agencies now say that, even before they issue final regulations, "in no event will an employee be required to treat a non-hospital/non-physician services plan as providing [minimum value] for purposes of an employee's eligibility for a premium tax credit."

Mean dog

3. You or your clients might run up against a "duty to inform" requirement.

The agencies want an employer that offers a non-hospital plan -- including a non-hospital plan set up before Nov. 4, 2014 -- to correct any earlier disclosures that stated or implied that the plan might keep the enrolled employee from qualifying for a PPACA premium subsidy tax credit.

If an employer with a non-hospital plan fails to tell an employee that the employee is still eligible for a tax credit, the agencies will consider the plan as implying that the employee was ineligible for the tax credit, officials say.

Officials did not say what penalties employers might face if the agencies find that employers use poorly explained non-hospital plans to discourage employees who might qualify for the premium subsidy tax credit from applying for the tax credit. 

See also: IRS explains PPACA for plain folks

Erase.

4. The final, real rules could be different.

Regulators have expressed their views on this issue in a batch of informal guidance that could lead to draft regulations. Those draft regulations are likely to go through a public comment process.

If the agencies complete the regulations, Congress could have something to say about the regulations.

Employers or others that object to any regulations could sue, and the courts could weigh in.

Even if there are regulations, those regulations look exactly as you think they'll look, and the regulations take effect exactly as written, without interference from Congress or the courts, it's hard to know how well agencies will actually enforce the regulations. Maybe your clients could get away with offering non-hospital plans for years, or decades, without noticing. Maybe the final regulations will grandfather in employers that adopt non-hospital plans early, before the draft regulations or final regulations appear.

You never know. You pays your money and you takes your chances.

See also:

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