Affordable Care Act Compliance: “If it sounds too good to be true, then it probably is."

Affordable Care Act Compliance: “If it sounds too good to be true, then it probably is."

Article by Erika Salerno

When it comes to employer cost saving loopholes under the Affordable Care Act, the old idiom applies:  “If it sounds too good to be true, then it probably is.”  As employers face the full force of the implementation of the ACA in 2015 and 2016, many have turned to “skinny” plans and cash opt-out offers to save on the costs of employer provided health insurance coverage.  However, employers must be wary of these alternatives which offer nothing more than a “wolf in sheep’s clothing” approach to employers who may be trying to save money on health insurance.

“Skinny” plans generally exclude substantial coverage for in-patient hospitalization services or physician services (or both).  For some employers, "skinny" plans appeared to be a cost-efficient alternative to providing minimum essential health coverage for employees under the ACA because the “skinny” plans met the minimum value standard as calculated by the Department of Health and Human Services (“HHS”) on-line calculator[1]. However, in November of 2014, HHS and the Internal Revenue Service issued Notice 2014-69, closing the loophole on “skinny” plans and giving notice to employers that the plans do not meet the minimum value requirements of the ACA.

As a result, "skinny" plans should not be adopted for the 2015 plan year unless, prior to November 4, 2014, the employer entered into a binding agreement to implement a "skinny" plan or started enrollment in a "skinny" plan that would begin on or before March 1, 2015. In addition, if a "skinny" plan is offered as the only employer-sponsored plan in 2015, the employer must not state or imply that the plan provides minimum value.

Many employers have also offered cash opt-out offers to employees as a cost-saving measure. A cash opt-out offer is where an employer gives an employee the choice to 1) enroll in the employer-sponsored group health plan and pay a portion of the premium for employee-only coverage; or 2) receive a cash payment in exchange for not enrolling in the group health plan.

Unfortunately these arrangements potentially violate not only the ACA, but several other federal laws including the Internal Revenue Code ("Code"), the Employee Retirement Income Security Act ("ERISA"), and the Health Insurance Portability and Accountability Act ("HIPAA"). For example, nondiscrimination provisions, originally implemented by HIPAA, but also contained in ERISA and the Code, prohibit group health plans and insurers from discriminating against individuals in terms of eligibility for benefits or premium rates based on health factors. Offering only certain employees (perhaps those with severe medical conditions) cash for opting out of the group health plan violates the nondiscrimination provisions.

These are complex issues with profound potential consequences. If you are confused, you are certainly not alone. You may wish to discuss these matters in greater detail with your healthcare benefits profider or legal counsel. Most of all, bear in mind that employers who are exploring ways to save costs on health insurance while complying with the requirements of the ACA, should tread carefully, and remember: “If it sounds too good to be true, it probably is."

[1]  The Center for Consumer Information & Insurance Oversight (CCIO) at HHS released a “minimum value calculator” to be used by employers to determine if their health insurance plans met the requirements of the Affordable Care Act..

Posted on January 12, 2015
Tagged as Healthcare Law, Labor & Employment Law