Employers Can't Skip Insurance Coverage For Hospitalization

Some employers said that leaving out hospital coverage helped protect low-wage workers from big deductibles.

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Closing what many see as a loophole that could trap millions of people in substandard insurance, the Obama administration said Tuesday that large-employer medical plans lacking hospital coverage will not qualify under the Affordable Care Act's toughest standard. It also offered relief to workers who may be enrolled in those plans next year.

The administration will rule that plans without "substantial coverage for in-patient hospitalization services" do not meet the law's "minimum value" threshold, the Treasury Department said in a notice. It will issue final regulations saying so next year, it said.

"It's good news for employees," said Sabrina Corlette, project director at Georgetown University's Center on Health Insurance Reforms. "They shouldn't be stuck with subpar coverage."

Hundreds of employers with low-wage workers such as retailers and temporary-staffing companies have been preparing to offer such plans for 2015, the first year large companies are liable for fines if they don't provide minimum coverage.

Unlike insurance sold to individuals and small employers, large companies aren't required to offer the health law's "essential health benefits," including hospital services. But most analysts assumed that the minimum value calculator — testing whether insurance pays at least 60 percent of expected medical costs for a given plan — would require hospital care. It didn't.

Although the insurance costs half as much as similar coverage including hospitalization, an online calculator published by the Department of Health and Human Services certifies it as passing the law's minimum-value standard, Kaiser Health News and The Washington Post reported two months ago. Many see the calculator as flawed.

Numerous large employers have already committed to such coverage for next year, brokers say. Some have enrolled workers for insurance beginning in October.

Responding to industry pleas, the administration agreed to allow those plans for a year if employers committed to them before Nov. 4. But officials also moved to give their workers an affordable alternative, granting an exception to the rule that would have barred them from premium subsidies if they opted instead to buy insurance on the health law's online marketplaces.

Under the health law, employees offered minimum-value coverage at work are ineligible for federal tax credits in online insurance marketplaces. "In no event" will workers given an employer plan without hospital coverage be disqualified from the subsidies, Treasury said Tuesday.

'It's a very positive, constructive, sensible step," said Edward Lenz, senior counsel for the American Staffing Association, a trade group for temp and recruiting companies. "The key is that everybody's going to be held harmless" — companies that have committed to the plans as well as workers wanting to buy their own subsidized insurance with broader coverage.

Something like half the association's 1,600 members, who employ 3 million people on any given day, had committed to offer or were considering calculator-tested plans without hospital coverage, Lenz said.

While big companies that have traditionally provided major medical coverage aren't interested, numerous retailers, home-health companies, light manufacturers, hoteliers, restaurateurs and other lower-wage employers also plan to offer them, said brokers.

"There was tremendous interest in this" from companies that hadn't previously provided health benefits, said Edward Fensholt, a benefits lawyer with Lockton Companies, a large insurance brokerage and consulting firm.

Employers that have committed to the plans "are delighted" by the decision to allow a one-year reprieve, Fensholt said. Companies that were considering them but hadn't pulled the trigger by Tuesday "are between a rock and a hard place," he said.

Lower-wage employers that had never offered substantial coverage were already struggling to obey the health law, said Kevin Schlotman, director of benefits at Benovation, an Ohio firm that designs and administers health coverage. More than a dozen Benovation clients are in some stage of implementing calculator-tested plans without hospital coverage, he said.

"The last-minute rule change is problematic," he said. "These employers are searching for a solution that permits them to comply while at the same time doesn't burden the business with hundreds of thousands in expenses they have never had in the past."

While they lack hospital coverage, low-cost plans that pass the calculator are rich in outpatient benefits such as physician visits. Consultants and employers argue that such insurance is more useful to low-pay workers than the alternative —coverage with hospitalization that comes with a $5,000 deductible — the portion members pay before insurance kicks in.

Hospital officials predictably praised the administration's move.

"Hospitals and health systems were deeply concerned about plans that potentially excluded important hospitalization and are pleased with the action to address the matter in the best interest of patients," Richard Umbdenstock, president of the American Hospital Association, said in a prepared statement.

The administration had signaled last month it would move to disallow plans without hospital benefits from passing the minimum-value test. Large employers that fail to offer minimum-value coverage next year could be fined up to $3,120 per worker. The penalties become effective when workers buy plans in the online exchanges and qualify for subsidies based on their income.

Plans without hospital coverage that pass the minimum-value test are different from "skinny plans," another kind of limited-benefit plan offered by lower-wage firms such as retailers and staffing companies.

Employer-sponsored skinny plans include preventive-care benefits and little else. Consumer advocates unexpectedly realized last year that skinny plans fulfill a second ACA requirement for employers, which is to provide "minimum essential coverage."

Failure to meet that threshold next year can cost large employers up to $2,080 per worker. Tuesday's move affects only plans that claim to pass the minimum-value test — not skinny plans and the weaker minimum essential coverage standard.