The Skinny on
May 28, 2020
Many in the industry opined about the potential success or failure of the notorious "Skinny Plans". Would they be allowed? Was it just "junk" insurance or did it serve a purpose? Who would buy it and better yet, who would sell it?
Skinny Plans are alive and well in 2015. Some have put on a few pounds but just barely. And an informal poll reveals that more than one million folks have enrolled in these programs.
To review, Skinny Plans became available about two years ago as a strategic solution to ACA compliance. For the client who decides to "play, " Skinny Plans offer a lower cost alternative to major medical plan designs while still allowing the employer to avoid certain penalties.
Skinny Plans come in two flavors: Minimum Essential Coverage (MEC) and Minimum Value (MV). The MEC plan satisfies the requirement to offer a plan to all employees thus eliminating a potential $2000 per employee penalty, after subtracting 80 employees from your total count. The MV plan satisfies the requirement to offer a plan with a 60% actuarial value. When accompanied by a 9.5% safe harbor, this eliminates a potential $3000 per employee penalty if that employee enrolls in the public exchange and receives a subsidy.
In insurance speak, the $2000 penalty is known as the “A” penalty and the $3000 penalty is known as the “B” penalty.
Early solutions offered a MV plan that did not include hospitalization. These plans when tested on the government AV calculator passed the 60% test, but have subsequently been disallowed. The client who was nimble enough to implement that plan design before November 4, 2014 enjoyed a full, penalty free year in 2015. However, if you were not able to meet that deadline, those plans are no longer considered compliant and in 2016, the MV plans will all include hospitalization.
More than a dozen underwriters offer Skinny Plans, with varying employer contributions and participation requirements. The MEC plan is the same plan design regardless of underwriter, while the MV plan varies dramatically from underwriter to underwriter. It is wise to check plan designs to determine alignment with other benefits offered.
The MEC plan, in particular, may be of greater assistance to both employer and employee. For the employer, it is clearly the least expensive way to offer coverage to 100% of employees. Most plans are guarantee issue, priced between $50-$100 PEPM, and offer a cost savings from one of the ACA “Pay or Play” penalties. For the employee, the MEC plan satisfies the individual mandate which carries a potential $325 penalty per person. At the low cost end of this product line, an employee can pay around $600 a year for a MEC plan, or pay $325 to the government as a tax penalty. The employee makes up the difference in cost by receiving annual checkups, wellness screenings, and other preventative services. For many, this is a better investment. For those employers who are still struggling with determining who is benefit eligible and the record keeping that goes with it, a MEC plan can be offered to all employees and eliminate that particular hassle.
It doesn't take a mathematician to calculate why this could be an attractive benefit. If the floor is a MEC plan at $60 PEPM and the ceiling is a PPO plan at $500 PEPM, both employers and employees can now enjoy the flexibility of choosing an ACA compliant plan that meets their budget needs.
Everyone has an opinion about what is considered good coverage. Is good coverage comprehensive for all manner of illness and injury subject to a $350 PEPM payroll deduction, followed by a $5000 deductible, followed by 20% coinsurance? For those that can't meet their out of pocket obligations, this “good” coverage just became “bad” coverage because there was no coverage of any kind for their flu and broken ankle. Is “bad” coverage” a MEC which although inexpensive at $60 PEPM, only covers wellness and prevention and provides a network of providers who have discounted their charges? Who pays for the heart transplant?
The marketplace is letting both employers and employees make the decision about how to best be compliant. The one thing pretty much everyone agrees upon is that paying a penalty benefits no one.
It really is all about the taxes. For every 50 employees for whom an employer pays the “A” penalty, a check for $100,000 is sent to the US Government. For every 100 employees for whom the employer pays the “A” penalty a check for $200,000 is sent to the US Government.
You get the idea. It does not require a large staff of employees to generate a BIG payment to the government. It is worth noting that this obligation is paid post tax and is not considered a tax deductible business expense.
The truly optimum solution includes multiple benefit offerings so that a customized solution can be crafted for each employer. Everyone should have access to a comprehensive major medical program; everyone should have access to a skinny MEC or MVP solution; surround that with ancillary access to life and disability programs and perhaps worksite benefit to fill a specific need and all parties have coverage they will use and can afford.
As with all things ACA, it is important to seek advice around record keeping and compliance. If you just discovered that you did not qualify for transitional relief be prepared to act quickly. Be certain to consider the implications of offering self-insured programs with various contribution strategies - discrimination testing may apply. And of course be certain that all of the carriers that are coming together to meet the needs of a single employer play well together from a participation and contribution perspective.
The Supreme Court met on March 4 for the first round of hearings. It will be late summer before we know for sure if the ACA is here to stay or more likely, what version of the ACA is here to stay. Until otherwise notified, this is still the law of the land and we are all required to pay or play. We believe that play is the right answer and that programs can be designed to fit every budget.
