The Affordable Care Act applies to employers with 50 or more full-time equivalent employees. It requires them to offer their full-time employees coverage that:
- Is affordable. The employee’s share of the annual premium for the lowest priced self-only plan can be no greater than 9.5 percent of annual household income.
- Meets minimum value standards. The law defines a minimum value plan as one designed to pay at least 60 percent of the total cost of medical services for a standard population.
- Covers certain “essential health benefits,” or ten broad areas of treatments and services. The Affordable Care Act requires all health plans offered in the individual and small group markets, both inside and outside of the health insurance exchanges, to cover essential health benefits. It also prohibits plans from placing annual dollar limits on these essential health benefits for plan years starting January 1, 2014.
The essential health benefits provision — arguably the most costly portion of the law — does not apply to large group health plans. This creates a loophole for large employers, generally those with 101 or more employees. Although large group plans must cover preventive care services with no copayment, they do not have to cover “essential health benefits.”
Skinny Health Plans
Skinny plans designed to meet ACA requirements for large employers cover the ACA-required preventive services. To keep premiums low, however, they do not cover the “essential health benefits,” or place a very low limit on those benefits, such as $100 per hospitalization. This allows insurers to develop skinny plans that cost only a fraction of what an ACA-compliant plan would cost.
Although skinny plans meet the ACA’s affordability standard—because they don’t cover much—they do not meet the minimum value standard. A health plan meets this standard if it’s designed to pay at least 60 percent of the total cost of medical services for a standard population.
The ACA makes a premium tax credit available to individuals who do not receive qualifying employer health coverage, if their household income is between 100 percent and 400 percent of the federal poverty level. This allows them to buy coverage on the individual market. People who receive an offer of ACA-qualifying coverage from their employer cannot get the tax credit. If the ACA applies to your organization and any of your employees or their family members enroll in an individual market health plan through an exchange and receive a tax credit, you will be subject to a fine.
In early November 2014, the IRS warned that “certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services are being promoted to employers.” In a notice issued by the IRS, the agency said that it believed that such plans “…do not provide the minimum value intended by the minimum value requirement.” The IRS said that it and the Department of Health and Human Services (HHS) would propose regulations to close this loophole, with the goal of finalizing and implementing them in 2015.