‘Skinny’ Health Plans Are Still an Option – Despite Penalty By: Kathy Coughlin, President KathyC@HRServiceGroup.com
As the implications of health care reform become more apparent, large employers
(more than 50 employees) are increasingly struggling with coverage options
to avoid the penalties and minimize cost at the same time.
There is an added challenge for employers with low wages and high turnover
that have traditionally not offered health coverage in the past.
Under the Affordable Care Act (ACA), employer-provided coverage is considered “unaffordable” if:
It costs more than 9.5 percent of the employee’s W-2 wages, or
It doesn’t cover an average of 60 percent of the employee’s medical expenses.
Once the ACA employer mandate takes effect in 2015, if an employer with the equivalent of 50 or more
full-time workers does not provide affordable coverage to full-time workers (based on a 30-hour work
week), those workers can shop for insurance through a public exchange and may qualify for a federal premium
subsidy or tax credit. An employer would face a penalty of $3,000 per each full-time worker who
receives a subsidy/credit.
Keep in mind, affordability penalty is separate from the “pay or play” employer mandate to provide health
coverage or pay a penalty of $2,000 per each full-time employee.
One option some employers are looking at is the offer of a “skinny” or non-minimum-value plan. This is a
group health plan that provides medical care but may not satisfy the 60 percent minimum actuarial value
threshold under the ACA, which mandates that plan participants pay no more than 40 percent of covered
If an employer offers a plan that is not minimum value (“skinny”), an employee may apply for a federal subsidy
or tax credit for coverage purchased through a public health care exchange, and this could trigger a
penalty for the employer of $3,000 per each full-time employee that receives a subsidy/credit. But this
penalty would be lower than the penalty associated with not offering any health plan at all (the “play or
pay” $2,000 penalty times every full-time employee).
Many employers with low-wage/high turnover employees are considering a “skinny” health plan as a viable
alternative. It allows employers to satisfy the ACA’s “play or pay” coverage requirement and avoid the
larger penalty associated with that option. It, therefore, minimizes the risk financially. Also, if employees
accept the “skinny” plan, they will not themselves be penalized with the individual mandate’s tax penalty
currently in effect for not having coverage—in some respects, a win-win for both employee and employer.
A second strategy is to offer two plans: (1) a “skinny plan”, and (2) a richer option with a minimum actuarial
value over 60 percent and a premium contribution cost that just barely meets the ACA’s 9.5 percent
wage threshold, which few low-income employees are expected to take because of the cost. This strategy
enables employees to opt for the “skinny plan” that they can afford, while the offer of the richer option
protects the employer from the “play or pay” penalties.
Volume 8, Issue 4 Latest in HR news and alerts
‘Skinny’ Health Plans Are Still an Option – Despite Penalty (cont’d)
A third strategy is to simply offer the richer option and allow it to be unaffordable. For example, the plan
could be offered on a fully contributory (i.e., employee pays all) or nearly fully contributory basis. This
strategy avoids the “play or pay” penalty, although the employer is still liable for the unaffordable penalty,
but only with respect to those employees that apply and are granted a premium subsidy or tax credit.
At this point no one really knows what the best approach is when the employer mandates take effect in
2015 as far as reducing cost and liability. The skinny plans may not provide sufficient coverage to satisfy
the “minimum essential coverage” criteria, which under current regulations seems a possibility. Eventually,
these plans may not be viable, but for now all options are being considered – especially employers in industries
with high-turnover and low wages.
Final Rule Limits Health Care Enrollment Wait to 90 Days
A final rule under the Affordable Care Act (ACA), published in the Federal Register
on Feb. 24, 2014, clarifies how to apply the 90-day maximum limit that employers
can impose before health coverage becomes effective. A new proposed rule
would extend the waiting period by an additional month for a bona fide employment-
based orientation period. The 90-day limit under the final rule is effective for
plan years beginning on or after Jan. 1, 2015.
Under the final rule, after an individual is determined to be otherwise eligible for
coverage under the terms of the plan, any waiting period may not extend beyond
90 days, and all calendar days are counted beginning on the enrollment date, including
weekends and holidays.
The rule does not require the plan sponsor to offer coverage to any particular individual or class of individuals
(such as part-time employees); rather, it prohibits requiring otherwise-eligible individuals to wait
more than 90 days before coverage becomes effective.
Being otherwise eligible to enroll in a plan means having met the plan’s substantive eligibility conditions (for
example, being in an eligible job classification, achieving job-related licensure requirements specified in the
plan’s terms, or satisfying a reasonable and bona fide employment-based orientation period).
Kathy Coughlin, President KathyC@HRServiceGroup.com
Other conditions for eligibility are generally permissible, such as meeting certain sales goals, earning a certain
level of commission or successfully completing an orientation period.
Latest in HR news and alerts April 2014