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Obama Administration Disallows Health Plans Without Hospital Coverage

Employers risk $3,000 fine per worker

The Obama administration has blocked health plans without hospital benefits that many large employers argued fulfilled their obligations under the Patient Protection and Affordable Care Act (PPACA), according to Kaiser Health News.

Companies with millions of workers, mainly in lower-wage industries, such as staffing, retailing, restaurants, and hotels, that had not offered health coverage previously have been flocking toward such insurance for 2015.

Plans lacking substantial coverage of hospital and physician services do not qualify as “minimum value” coverage under the PPACA and so do not shield employers from fines of $3,000 or more per worker, the Department of Health and Human Services (HHS) said on February 20.

The move closes what many saw as a surprising loophole, first reported by Kaiser Health News in September, that lets companies bypass the PPACA’s strictest standard for large-employer coverage while at the same time stranding workers in sub-par insurance. Employees offered such plans would have been ineligible for tax credits to buy more comprehensive coverage in the Act’s online marketplaces.

The HHS did decide to allow such plans for this year only if employers had signed contracts by November 4. However, it also granted relief to workers offered such coverage, saying they may receive tax credits according to their income to buy more comprehensive insurance in the online exchanges. Ordinarily, employees offered coverage qualifying as minimum value are not eligible for the subsidies.

A plan without hospital benefits “is not a health plan in any meaningful sense,” the HHS said. Scoring such a plan as minimum value “would adversely affect employees (particularly those with significant health risks) who understandably would find this coverage unacceptable.”

The ruling ends a debate that erupted last summer over the HHS’ official online calculator for determining minimum value in a large-employer plan.

The PPACA does not specify “essential health benefits” in large-employer plans, such as hospitalization and drugs, as it does for individual and small-business insurance. Instead, the minimum-value test requires large companies to cover at least 60% of expected medical costs.

One way to certify a plan as “minimum value” is to plug its components — benefits, deductibles, and so forth — into the official calculator. Many were shocked to learn that the calculator gave passing scores to plans with no inpatient hospital coverage.

According to Kaiser, the HHS is essentially saying: “Ignore the calculator. Large-employer plans must pay for substantial amounts of hospital care no matter what.”

Even with its allowance for companies that had signed contracts by November 4, the HHS stopped short of employer pleas for more flexibility. Industry groups wanted a green light to temporarily offer plans without hospital benefits if companies had made substantial preparations to do so but hadn’t signed a deal.

It is unclear how many firms will offer such coverage for 2015, Kaiser says. Nearly half of the 1,600 employer members of the American Staffing Association, which employ 3 million temporary employees on any given day, had committed to offer or were considering the plans last fall before Kaiser reported that regulators were moving against them.

While some members followed through and adopted such coverage, most did not, said Edward Lenz, senior counsel for the association, a trade group of temp and recruiting firms.

Calculator-approved plans lacking hospital benefits are comparatively rich in outpatient services, such as doctor visits. Consultants selling the coverage had argued that it was a good first step for lower-wage, high-turnover employers.

“I’ve had a couple of discussions in the last several days with clients who were interested but were disappointed that they were too late to install them for 2015,” said Edward Fensholt, a benefits lawyer with brokers Lockton Companies. Other companies “leapt on them,” he said.

Source: Kaiser Health News; February 23, 2015

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