The Wall Street Journal recently reported that employers are analyzing “bare-bones” health plans to avoid employer shared responsibility penalties under the Patient Protection and Affordable Care Act (PPACA). These bare-bones health plans are generally self-insured and cover preventative care with no cost-sharing and no annual or lifetime limits, and the routine costs of clinical trials, as required by PPACA. Although offering this type of plan in the small group market isn’t possible due to other benefit mandates, employers with at least 50 full time equivalent employees and particularly those in lower wage industries are considering this option as a way to provide some health coverage to their employees without running afoul of PPACA’s benefit mandates – or triggering huge excise tax penalties.
Beginning January 1, 2014, employers must either offer insurance coverage to substantially all employees working an average of 30 hours per week (a full time employee under PPACA), or pay excise tax penalties. Employers with at least 50 full time equivalent employees are particularly concerned about the penalty under IRC Section 4980H(a). This penalty is triggered if an employer does not offer minimum essential coverage to substantially all of its full time employees (and their dependents), if any one full time employee purchases coverage through a Health Insurance Marketplace and receives a premium tax credit or cost-sharing subsidy. At $2,000 per full-time employee (minus the first 30), this penalty can add up fast – it only takes one full time employee to trigger penalties across the board. On the other hand, the penalty under IRC Section 4980H(b) may not sting quite as much. This penalty is triggered if an employer offers minimum essential coverage, but that coverage is either unaffordable or does not provide a 60% minimum value. It is assessed on each individual full time employee that purchases coverage through a Health Insurance Marketplace and receives a premium tax credit or cost-sharing subsidy.
Employers faced with the decision of playing or paying want to know what it means to offer minimum essential coverage, as this is the escape hatch from the tax penalty under IRC Code 4980H(a). To answer this question, one must follow a rabbit trail of definitions. IRC Section 5000A(f)(1)(B) provides the definition of minimum essential coverage. That definition states that an eligible employer sponsored plan is considered minimum essential coverage. IRC Section 5000A(f)(2) provides that the definition of an eligible employer sponsored plan is either (a) a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act, or (b) any other plan or coverage offered in the small or large group market within a state. It appears, at least for now, that such a plan would save an employer from large penalties under IRC Section 4980H(a).
The question that still remains is whether this is a short-term strategy, or are these plans here to stay? Some argue that the employer shared responsibility penalty provisions were crafted to allow employers to offer a very lean health benefit without triggering penalties under IRC Section 4980H(a). However, others assert that this type of plan contravenes one of the most important underlying purposes of PPACA – to provide better benefits at a lower cost. All things considered, offering a bare-bones plan to escape the IRC Section 4980H(a) penalty is likely only a short-term strategy. As mini-med or limited benefit plans are phased out, the Marketplaces open, and pre-existing condition exclusions fall away, the Agencies are likely to close any regulatory gaps as the unintended consequences of PPACA’s provisions become apparent. Whether the proliferation of these plans is a result of intentional drafting or a regulatory gap can only be determined by future rulemaking.
For more information, see the original Wall Street Journal article published on May 19, 2013, courtest of Yahoo!Finance.
