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Monday, May 20, 2013

WSJ: Employers Eye Bare-Bones Health Plans Under New Law

An interesting story in the Wall Street Journal discusses how larger employers are looking to comply with the Affordable Care Act by offering bare-bones coverage that does not even cover hospitalization, surgery, X-rays, or maternity care.  Insurance brokers are now marketing these stripped-down products, particularly to employers in low-wage industries.

As Prof. Timothy Jost and others have pointed out, large-group plans (i.e., those for employers with more than 100  employees) and self-insured plans are exempt from one of the most important provisions in the ACA--the requirement to cover a package of "essential health-benefits" including ambulatory and emergency services, mental health care, and maternity and newborn care.  Large-group and self-insured plans are only required to cover preventive health services, such as immunizations, well-child visits, and various screenings.  By contrast, small-group plans (i.e., those for employers with 100 or fewer employees) must cover the full package of essential health benefits.

This is a major loophole in the ACA that has at least two negative consequences.  First, it puts small- and medium-sized businesses at a competitive disadvantage against larger businesses that can offer stripped-down coverage and still avoid penalties under the ACA.  Smaller business, meanwhile, must either offer more expensive plans with generous benefits or pay potentially hefty penalties.

This flaw in the ACA also hits low-wage employees of those large employers who decide to offer only the kind of bare-bones plans described by the Wall Street Journal.   Employees in this situation likely would be better off if the employer had offered no coverage at all.  If an employee chooses to accept the bare-bones coverage, he and his family would not really have what we think of as health insurance.  If the employee is seriously injured in an auto accident, the low-benefit insurance would not cover the ambulance ride, would not cover the surgery, would not cover the hospital stay, and would not cover the rehabilitation.  The employee could be left holding a bill on the order of tens of thousands of dollars.

On the other hand, the employee could decline the employer-sponsored coverage and go out and purchase coverage on one of the new Health Insurance Exchanges (or Marketplaces).  However, assuming the bare-bones coverage offered by the employer was affordable and offered minimum value (as set forth in the ACA), the employee would not be eligible for a premium tax credit when he buys insurance on an exchange.  For low-wage workers, the premium tax credit would otherwise cover a large percentage of the cost of premiums.  But for the unlucky worker whose employer offers bare-bones coverage, he will have to pay the full sticker price if wants to buy health insurance with real benefits.

I welcome your comments on this issue, which appears to be a major structural problem with the ACA.

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