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What may be a flaw in the federal government's online calculator to determine if employer-provided health insurance coverage meets the health care reform law's “minimum value” test is allowing employers to offer low-cost basic plans without triggering a big reform law penalty.
If a plan does not pass the test, which broadly requires employer plans to pay for at least 60% of covered services, lower-income employees have the right to obtain federally-subsidized coverage in public health insurance exchanges. In that situation, an employer would be liable, starting in 2015, for a $3,000 penalty for each full-time employee who obtains the subsidized coverage.
But if a plan passes the minimum value test, employees are not eligible for the subsidy, and employers will not face the penalty.
Benefit experts say health plans some employers intend to offer next year that exclude coverage for hospital care are passing — when using the government calculator — the minimum value test.
The appeal to employers of offering such limited plans is basic: By excluding coverage of hospital expenses, the cost of such plans is about half that of more traditional plans, benefits consultants say.
“We've told our customers that if you want to adopt such a plan, do it with your eyes open. There probably is an error in the calculator,” said Ed Fensholt, senior vice president and director of compliance services at Lockton Benefit Group in Kansas City, Missouri.
“For certain employers, it appears to be a perfect solution. These are low-cost plans that meet the 60% test. The employer doesn't have to worry about big hospital claims or about the $3,000 health care reform law penalty,” said Richard Stover, a principal at Buck Consultants at Xerox in Secaucus, New Jersey.
The biggest marketplace interest in plans that do not cover hospital costs is coming from staffing firms and retailers, which may not have offered health insurance or offered very limited plans and would face higher costs if they offered more traditional plans or big financial penalties if they did not.
“For a segment of the workforce, these plans may be appropriate. Compared to mini-med plans, these plans may be a step up,” said Alden Bianchi, a member of Boston-based law firm Mintz Levin Cohn Ferris Glovsky & Popeo P.C. Mini-med plans, which didn't pass muster under the health care reform law, were designed to provide a flat dollar annual amount, such as $25,000, for coverage of health care services.
On the other hand, such plans have no interest for many employers. “This is not something our members are doing. They do not want employees exposed to enormous bills,” said Gretchen Young, senior vice president for health care at the ERISA Industry Committee, a Washington-based benefits lobbying group primarily made up of very large employers.
At the same time, experts are warning that regulators may intervene to make clear that plans excluding coverage of hospital expenses do not pass the minimum value test.
“We've told our customers that if you want to adopt such a plan, do it with your eyes open. There probably is an error in the calculator” used to determine minimum value, Lockton's Mr. Fensholt said.
Both the Treasury Department and the Department of Health and Human Services declined to comment. However, a government source said the Treasury Department is looking into the issue.
Some experts expect federal regulators to provide additional guidance on the issue, but no one knows when that might happen.
“It is a real mess. There is no question that regulators will address this. The question, though, is when will that happen,” Mr. Fensholt said.
“Regulators are aware of the issue. It is getting more and more visibility,” Buck Consultants' Mr. Stover said.
Should regulators change the online minimum value calculator, an additional issue is what kind of transitional relief would be given to employers that relied on the government calculator and put in plans excluding coverage for hospital services, experts say.