Large companies that self-fund their health insurance are not required by the law to offer the 10 essential health benefits, which include inpatient services, but there is an annual cap on an employee's out-of-pocket costs. For 2015, that limit is $6,850. Still, some employees next year could receive a bare-bones health plan that only covers outpatient services like doctor visits.
“It wasn't an intention of the actuaries who designed this to carve out hospitalization,” said Anne Lennan, president of the Society of Professional Benefit Administrators, which represents third parties who help employers create health plans. “They were just being good health actuaries adhering to the law.”
Health benefit advisers said most of the companies experimenting with these types of plans—such as restaurants, nursing homes, convenience stores and dairy farms—have never offered health insurance before, and they usually employ low-wage workers. Additionally, skinny plans could be paired with hospital indemnity plans, though that would add costs for employees.
Some health economists are perplexed that such an option exists in the federal calculator methodology (PDF). “From the perspective of the economics of risk and insurance, a plan that generously covers outpatient care and completely excludes inpatient care is flat-out nuts,” said Richard Hirth, a health policy and management professor at the University of Michigan's School of Public Health, in an e-mail.
“What insurance should cover first is the low-probability, high-cost events,” Hirth said. “These plans are like buying homeowners insurance that covers broken windows from the first dollar but excludes coverage for your house burning down.”
Danny Chun, a spokesman for the Illinois Hospital Association, said the option to build a health plan without covering inpatient care is a “significant” flaw. Joe Fifer, CEO of the Healthcare Financial Management Association, a membership group for hospital finance executives, agreed.
“It just seems terrible for both hospitals and employees,” Fifer said. “It calls into question: 'What's the purpose of insurance if it doesn't cover catastrophic situations?'”
However, Kevin Schlotman, director of employee benefits at health brokerage Benovation, said the government clearly made inpatient services an optional benefit for self-funded plans since the box on the calculator could be unchecked.
“I've seen people portraying it as a glitch or an error. I don't see it as that,” Schlotman said. “Logically, it shouldn't have been an option to remove.”
Physicians and outpatient centers would stand to benefit from these plans, said Jim Smith, senior vice president at healthcare consultancy The Camden Group. Patients, assuming they know the full scope of their health plan, would avoid hospitalization at all costs, thus increasing visits to outpatient providers.
But for hospitals, treating a patient with this type of skinny plan has severe financial ramifications, the industry says. Those patients essentially would be on par with the uninsured, which would force hospitals to resort to their charity-care policies and write off debt that would be difficult if not impossible to collect.
“Are (hospitals) going be criticized for collecting on those patients?” Fifer said.
Benefit advisers believe the plans would only represent a small slice of the employer-sponsored market, and many companies view the policies as bridges to more comprehensive health insurance. “Is (the coverage) great? No,” Schlotman said. “I think most of the employers I'm speaking with are seeing it as a stepping stone.”
It's unclear what the government will ultimately do with the plans. HHS and the Treasury Department did not respond to requests for comment. However, FAH's Kahn said he is “convinced” the feds will adjust the calculator so that all health insurance policies include inpatient care.
“Anybody's definition of health insurance that doesn't include hospital coverage is just not health insurance,” Kahn said.