Can insurers develop a legal, profitable product for kids who fall through PPACA coverage access gaps? (AP photo/Seth Perlman)

The Internal Revenue Service (IRS) and the U.S. Department of Health and Human Services (HHS) may have created a complicated new market for limited-benefit health insurance plans.

The IRS and HHS raised the possibility that the market could spring to life in 2014 Wednesday, when they released final regulations and draft regulations implementing portions of the Patient Protection and Affordable Care Act of 2010 (PPACA).

If PPACA takes effect as written and works as drafters expect, a “shared responsibility” mandate provision will require many employers to provide a minimum level of help with paying for “minimum essential coverage” in 2014 or else pay a penalty.

Another coverage mandate provision will require many taxpayers who can afford health coverage to have coverage or else pay a penalty.

Federal agencies have decided that an employer can satisfy PPACA coverage mandate obligations by providing bare-bones, “bronze-level,” worker-only coverage set up in such a way that a worker’s share of the premiums would amount to less than 9.5 percent of the worker’s W-2 wages from that employer.

An employer need not provide any subsidy for dependent benefits and has no obligation to ensure that a worker will be able to afford the dependent benefits, officials have concluded.

If a “shared responsibility family” shows that dependent benefits are unaffordable, the family can avoid paying the tax penalty that will be imposed on “irresponsible” taxpayers, but the federal government will not give that family any extra help with paying for health coverage, officials said.

Insurers interested in selling health insurance products to the spouses and children of workers in the new PPACA health benefits affordability no-man’s land will have to figure out what kinds of products they can sell that could help fill in the gap for a price that low-paid workers can pay without running afoul of PPACA.

PPACA will require insurers to sell major medical insurance on a guaranteed-issue basis, without making much use of personal health information in setting prices, and it will require major medical coverage to cover at least 60 percent of the actuarial value of a standard “essential health benefits” package.

One provision in PPACA excludes indemnity insurance products from the scope of the new PPACA coverage requirements.

In January, however, regulators said that they believe that only certain types of indemnity health insurance products can qualify for the PPACA indemnity product exclusion, at least in a group benefit plan context.

When offered under a group health plan, PPACA-excluded indemnity insurance “must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100 per day) regardless of the amount of expenses incurred,” officials said.

If “indemnity insurance” offered a group plan pays a per-service rate, such as $50 for a doctor’s visit, that policy is, in practice, a form of health coverage instead of an income replacement policy, and regulators do not believe that kind of policy would meet the conditions for PPACA-excepted benefits, officials said.

See also: