Health plans offered by large, self-insured employers that do not include inpatient hospital services as a standard benefit will soon be a thing of the past, according to a notice released Tuesday (PDF) by HHS and the Treasury Department.
The federal government said many healthcare industry stakeholders raised questions and concerns about the viability of these types of “skinny plans,” and hospitals are hailing the latest guidance. Many companies have been building health benefits packages for employees to avoid paying a penalty under the Patient Protection and Affordable Care Act. But some of those plans have excluded hospitalization benefits.
In the notice posted Tuesday, HHS and the Treasury Department said insurance options that don't cover both inpatient services and physician services will be considered noncompliant with the ACA.
“A plan that fails to provide substantial coverage for these services would fail to offer fundamental benefits that are nearly universally covered and historically have been considered integral to coverage under typical employer-sponsored group health plans,” the government said.
The ACA requires health plans in the individual and small-group markets to cover 10 essential health benefits, including hospitalizations. However, self-insured employers don't have to follow that rule as long as they offer health plans that cover at least 60% of potential health costs—or what a bronze plan covers on the individual exchanges. Consequently, some employers began constructing health plans through the ACA's benefits calculator that had the option of excluding inpatient services.
Hospitals and health economists called the calculator's initial design flawed, saying it allowed health plans that were akin to homeowners insurance that excluded coverage for a house burning down.
“The earlier version of the calculator didn't live up to the spirit and letter of the ACA,” said Chip Kahn, CEO of the Federation of American Hospitals, who previously said there would be a “consumer and employee revolt” if health plans without hospital coverage were permitted. “I think this (change) sets the calculator right,” he added. “I don't think there was any way this was going to stand, and it didn't.”
Employers that already started enrolling employees in no-hospital plans or had a binding agreement with a benefits administrator before Nov. 4 to offer the plans will be given a temporary pass. However, HHS said, all health plans that begin after March 1, 2015, should abide by the new standards.
In addition, employees who ultimately are offered a skinny plan with no hospital coverage will be able to receive premium subsidies under the law to lower their cost burden—something they wouldn't have gotten previously. “This seems like a pretty smart fix for the administration,” said Caroline Pearson, a vice president at consulting firm Avalere Health. “It's really meant to protect workers.”
Exempted employers are not expected to be penalized if those employees receive the tax credits. But the employers will have to adjust their future health plan options to ensure all hospital and physician services are included. “Any large-employer, self-insured skinny plan that has been designed to take advantage of this loophole will likely need to be redesigned if the employer wants to avoid fines related to the employer shared-responsibility requirement,” said Rick Lindquist, president of Zane Benefits, a health benefits company.
Employers tinkering with these types of plans reportedly have never offered health insurance before, and most are in industries with low-wage workers, like restaurants and nursing homes. According to Kathryn Wilber, senior counsel of health policy at the American Benefits Council, the new guidance is welcome because it at least provides clarity on what can be offered in the future.
“That's something that employers always want to understand. And there was some uncertainty here,” Wilber said. She said none of her group's members, which include Fortune 500 companies and other large employers, indicated they had adopted health plans designed without hospitalization benefits.
The American Hospital Association, which voiced concerns to the CMS about health plans that lacked hospital benefits, called Tuesday's guidance necessary even if it addresses a problem that's not widespread. “One of the goals of the ACA is to protect all Americans from receiving substandard health insurance coverage that leaves them vulnerable to poor health outcomes and potentially disastrous financial stress,” AHA CEO Rich Umbdenstock said in a statement.
HHS and Treasury expect to release final guidance on or around March 1.
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