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IRS moves to kill ultra-skinny self-insured plans

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The Internal Revenue Service (IRS) has drafted the regulations it intends to use to keep self-insured employers from offering workers “very skinny” major medical plans.

In a proposed revision of an existing regulation, Minimum Value of Eligible Employer-Sponsored Health Plans (RIN 1545-BM85), the IRS declares that an employer-sponsored plan provides “minimum value” only if the plan pays at least 60 percent of the total allowed costs of the benefits provided, and only if the plan “provides substantial coverage of in-patient hospital services and physician services.”

“Comments are requested on rules for determining whether a plan provides ‘substantial coverage’ of in-patient hospital and physician services,” officials say in a preamble to the proposed regulation revision.

The draft is set to appear in the Federal Register Tuesday.

In January, the U.S. Department of Health and Human Services (HHS) released final regulations forbidding employers from adding skinny major plans after November 2014. HHS also refused to let employee access to existing skinny plans keep those employees from qualifying to get Patient Protection and Affordable Care Act (PPACA) exchange plan premium tax credits.

The IRS says it developed the new minimum value regulation revision to put the HHS regulation into effect.

See also: 3 ways new PPACA employer rules could hit your clients

PPACA now requires many individuals with incomes over a certain level to have “minimum essential coverage” (MEC) or face the possibility of having to pay an “individual shared responsibility” penalty. Workers can avoid having to pay the penalty by saying they have employer-sponsored group health coverage with a minimum value.

PPACA also requires employers to offer full-time, permanent workers affordable coverage with a minimum value to avoid having to pay “employer shared responsibility” penalties. 

An employer may have to pay a $2,000-per-full-time-equivalent penalty if it fails to provide any coverage, and at least one full-time employee gets a PPACA exchange plan premium tax credit.

A second, $3,000-per-full-time-equivalent applies if an employer fails to provide affordable coverage with a minimum value.

The PPACA minimum value provision requires an insured group plan to provide at least 60 percent of the value of a standard health benefits package, the essential health benefits (EHB) package, but PPACA itself does not set any minimum value standard for self-insured plans.

See also: 3 notes on the PPACA ultra-skinny plan guidance

Early on, some insurers and distributors suggested that employers could avoid paying the $2,000 penalty, and satisfy employees who simply want to get out of paying either insurance premiums or PPACA penalties, by offering self-insured plans that provide only the minimum benefits legally required by PPACA and older HHS regulations.

Promoters of the skinny plans said the plans would cover the basic PPACA preventive services benefits package that all non-grandfathered health plans, including self-insured plans, now must cover, and that the plans would provide the benefits they did cover without imposing individual or lifetime benefits limits. But the plans would provide little or no coverage for hospital care or physician services.

See also: How minimal can PPACA-required coverage be?

HHS officials said when they issued their own regulations that “a health plan that does not provide substantial coverage for inpatient hospitalization and physician services does not meet a universally accepted minimum standard of value expected from and inherent in any arrangement that can reasonably be called a health plan, IRS officials write in the preamble to their own draft.

Letting employers use skinny plans to keep workers from qualifying for exchange plan premium tax credits would hurt workers who need good health coverage, and it could help employers chase away workers with health problems, IRS officials say.