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“Junk Health Insurance,” Favored by Retailers and Restaurants, Will Survive Obamacare

| August 26, 2013

Retailers like Walmart and big restaurant chains favor bare-bones insurance that covers few health needs but keep the businesses within the Affordable Health Care Act's requirements. (Walmart)

Retailers like Walmart and big restaurant chains favor bare-bones insurance that covers few health needs but keep the businesses within the Affordable Health Care Act’s requirements. (Walmart)

Consumer Reports calls it “junk health insurance.” A California regulator described them as “skeleton policies.” To an expert from the American Cancer Society, they “are a perfect example of why health care reform is so crucial.”

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They are bare-bones health plans, and critics say they could leave consumers who become seriously ill on the hook for tens of thousands of dollars in medical costs. The Affordable Care Act was supposed to do away with them.

“The good news is that these plans will be a thing of the past in 2014,” Steve Larsen, then a high-ranking Department of Health and Human Services official, told reporters two years ago.

The law did outlaw so-called “mini-med” plans, which cap annual benefits at, say, $2,000 even though the average hospital stay costs $14,000. But now a new type of bare-bones policy may take their place.

Consumer advocates, employers and insurers say that unless regulators move to block them at the last minute, plans with limited benefits may continue to be offered by some large businesses, especially those with low-paid workers such as restaurant chains and retailers.

Proposed and final rules issued this spring surprised many by failing to bar large employers from offering insurance policies that could exclude benefits such as hospitalization.

Offering bare-bones policies may result in some fines, but that expense could be less than the cost of offering traditional medical coverage.

For large employers, “the feds imposed no minimum standard on how skimpy that coverage can be other than to say, in essence, it’s got to be more robust than a dental plan or a vision plan,” said Ed Fensholt, a senior vice president at insurance broker Lockton Companies. “We had customers looking at offering some relatively inexpensive and skimpy plan designs to satisfy the individual mandate at modest cost.”

Employers Showing Interest

“There is a lot of interest” from retailers and others that have offered limited-benefit plans in the past, said Joan Smyth, a partner with benefits consultant Mercer. She’s gotten so many inquiries since the Wall Street Journal reported on the issue in late May that limited benefit plans are “my favorite topic,” she joked.

Such plans were typically offered because some insurance was seen as better than none — and the premium costs for both employers and workers were far lower than for traditional coverage.

This summer, the Obama administration gave businesses with 50 or more employees another year, until 2015, to comply with the requirement that they offer insurance or pay a fine.

“Some of the pressure was taken off because of the announcement” to delay the employer mandate, said Neil Trautwein, employee benefits policy counsel at the National Retail Federation, a trade group. “But I think you will continue to see employers in many industries … carefully calculate their strategy for compliance,” in part by considering skinny plans. “As always, the interest is to limit cost increases.”

Officials for McDonald’s, Ruby Tuesday, Darden Restaurants and other large employers that have offered mini-med coverage in the past declined to comment or did not respond to questions about their plans.

Small Businesses Barred

The bare-bones plans cannot be offered to small businesses with fewer than 50 workers, or to individuals buying coverage through new online marketplaces that open for enrollment Oct. 1. But benefit experts expect some larger firms that buy outside the marketplaces or that self-insure to consider them.

The Obama administration says that workers offered such coverage may qualify to shop in the marketplaces and to buy subsidized plans.

“Individuals who are not already offered quality, affordable health care can enter into the marketplaces and choose a health insurance option that works for them,” said Sabrina Siddiqui, spokeswoman for the Treasury Department.

About 2 million Americans are covered by limited benefit mini-med insurance policies, many of which were issued by Aetna and Cigna.

Asked whether Cigna will offer new versions next year, a company spokesman said, “We are currently evaluating the types of plan designs that will meet the needs of employers and employees.” Aetna spokesman Matt Wiggin said the insurer is “still assessing” customer needs.

Skimpy insurance under the Affordable Care Act won’t be quite the same as it is now. Under the new rules, capping the dollar value of annual benefits isn’t allowed, but excluding entire categories from coverage – such as hospital stays – is permitted, say benefit consultants. That’s another way of keeping costs down.

Mini-Meds Have Morphed’

The law says only that large-employer policies must cover preventive care such as blood pressure tests or vaccines with no co-pays for consumers. So the plan could cover dental, vision and preventive cancer screenings, but possibly not the treatment or hospital care a patient could need if diagnosed with an illness.

True, the health act requires policies to include coverage for 10 broad categories of “essential health benefits,” such as hospitalization and mental health services, but that provision applies only to plans sold to small businesses and individuals.  Larger firms and self-insured employers are exempt.

Benefit advisers say some retailers and restaurant chains are considering limited-benefit plans for 2014 even though the deadline was pushed back for offering coverage or facing fines.

“It seems like mini-meds have morphed,” said Lydia Mitts, a health policy analyst for Families USA, a consumer advocacy group. The new limited benefit policies “are not the same animal but are still substandard coverage.” Employers offering these sorts of plans do face some risks, experts said. If a large employer doesn’t offer “minimum essential coverage,” it’s potentially liable for fines of $2,000 per full-time worker after the first 30 workers. Under the abstruse wording of the health law, however, skinny plans appear to qualify as minimum essential coverage.

But if employers don’t offer “comprehensive” policies — defined as covering at least 60 percent of health expenses — they must pay $3,000 for each worker who receives subsidies to buy coverage. Opinions differ on whether skinny plans will be able to pass the comprehensive test; some regulations are still pending. But employers see that potential expense as far lower than the cost of offering all their workers more robust coverage, experts said.

Some  businesses are also betting that few workers will go to the government-run marketplaces to seek subsidized coverage, opting instead for the skinny plan “which costs less than the penalty,” said Dania Palanker, senior counsel for the National Women’s Law Center in Washington, D.C.

Signing up for a company skinny plan would fulfill a consumer’s obligation to be covered under the health act and protect her from the law’s fines.

Advocates are still pressing employers to offer more comprehensive policies.

“People need to be covered for hospitalizations,” said Mitts of Families USA. “It’s important for employers to do the right thing and they should not just look at the minimum requirements of the law.”

–Jay Hancock and Julie Appleby, Kaiser Health News

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14 Responses for ““Junk Health Insurance,” Favored by Retailers and Restaurants, Will Survive Obamacare”

  1. RHWeir says:

    The ACA is a poorly thought out, compromised mess full of loopholes. Let’s toss it out and work on a real national health insurance plan for all citizens and include all employers and also address medical expense rate setting. What we have now is based on the FPL and is just more welfare. It may need to wait for the next administration. This one does not seem to be able to handle the issue equitably and completely.

  2. A.S.F. says:

    This is a travesty! The American Taxpayers will still be on the hook to pay for hospitalizations not covered by these bare-bones plans that result from emergency room visits. Greedy corporations and insurance companies will continue to wear the same spots they were born to wear, unless they are forced to act more responsibly. This is the fault of the Democrats in Congress and a major failure for the Obama administration, if it is allowed to continue on this path. Guys, we won the election! You have a mandate from the American people to fulfill! You cannot reason with a bulldozer that is used to flattening anything in its path. The Conservative Party, completely under the heel of its more fanatical right wing extreme elements, and big businesses, with their top-dollar lobbyists, have shown themselves to be incapable of compromise. They apparently feel compelled to protect nobody’s interests but their own. We cannot allow them to bring everyone and everything else down, in service to their own short-sighted bottom line. They can be trusted as much as we were able to trust the big banks that we bailed out, that, in turn, gave themselves lavish bonuses, thumbing their noses at the administration and American citizenry that bailed them out. We now see that they have changed little or nothing in the way of their compulsively predatory behavior. We should have learned something from that experience. There are no more cheeks to turn! Hold big business and insurers to a more appropriate bottom line. They will have to sacrifice something too, in order for our country to tackle this increasingly critical issue.

  3. Johnny Taxpayer says:

    When will we realize that the only solution is to get away from the employer based health insurance scheme. It doesn’t work anymore and hasn’t for the past 25-30 years. We need to purchase health insurance the same way we purchase car insurance. And it should cover the same types of things, significant collisions, not oil changes and new tires.

    • NortonSmitty says:

      That’s brilliant, it IS just like car insurance! I can see it now: “Well, we’re sorry Grandma, but it just ain’t worth the money to put ya’ in a new liver cause yer’ just too damn old. We figger we can hire us an undocumented Mexiccan girl to cook an’ do our laundry for about thirty years for what them damn Doctors would get from us for just a pound of liver, an’ at your age, sumpthin’ else would just go on ya’. You do know it’s nothin’ personal, just basic Reaganomics. By the way, you mind if we just put yer’ ashes in an old Folgers can instead of splurgin’ for that silly urn? I got my eye on that new trolling motor down at WalMart?

      • Shocked, I tell you... says:

        @ Norton: Except in this case, it isn’t Reaganomics. Blame it on the people who passed it without reading it.

    • A.S.F. says:

      @Johnny Taxpayer–Human beings are not machines. I can only imagine what you would consider to be “oil changes” and “new tires.” Are we talking about tests that save lives, like mammograms, pap smears, colonoscopies? Preventative health services that might actually save us money in the long run and promote a healthier lifestyle for our citizens? Would you dump mental health coverage in that group (of course, while blaming mental illness for gun violence in our country, not guns?) Why do you feel employers should have no responsibility for the welfare of their workers? I am sure they would scream loud enough if their employees refused to perform services other than what their job description tells them they must do, like overtime and extra assignments that go above and beyond what they are actually paid for. What we do need to do is do a tHOROUGH job of investigating what it will take to make such a huge overhaul of our healthcare system succeed. On that, I think we can all agree. But there are too many people waiting gleefully for the ACA to fail so they can protect their OWN benefits, profits and turf. And that ist the kind of selfishness that we simply cannot afford.

  4. NortonSmitty says:

    Why do we allow the current administration off the hook for not doing the right thing and allowing a Medicare Buy-in for anyone who wants it? Take the profit margin out of health care, screw the insurance Industry an allow us all to get the discounts the VA and others get on drugs and care.

    However, as long as they keep spending money like this, Politicians of both parties won’t give a damn about our needs. and this:

  5. Obama 2013 says:

    The ACA is not a poorly planned out law.

    It has loopholes because it has to have thousands of exceptions because not all business and states are the same. When creating a law that changes the way this country provides healthcare you need to try and cover every single option possible. That is why it has so many pages and if I made 250 to 350K as a congressman or Senator I think I would find time to read it. That is my job.

    If we had a congress worth a dam and governors that actually cared about their states and not trying to hate on the President the law would be even stronger and helpful to people today. (Florida and RICH Scott)

    The major issue with the ACA or Obamacare is the Republican party and the Greedy 1% is angry that not only was the law passed in Obama’s 1st term, it was also found constitutional by the Supreme Court. Us little guys won, we beat the giant and now they want to make us pay for it.

    They now have to play by a new set of rules and they don’t like being told what to do. These companies generate BILLIONS of dollars in revenue, they don’t pay their fair share in taxes and move jobs overseas and people stand behind them as they are something to worship. Greed is killing this country.

    People in this country need to start fighting back vs these greedy companies. Slowly Wal mart, UPS , Forever 21 and Papa Johns pizza (nothing but greedy unamerican companies) now need to stand up to public pressure with their policies.
    Consumers and voters have tons of power when we are allowed to keep our money and given the right to vote. (something the 1% is also famous for taking from the middle class). When revenues keep falling people the middle class started voting with their wallets maybe they will come around.

    But let’s be honest here. If the ACA was so bad why would so many millions of special interest dollars be spend to try and kill it? Why would they waste so much money if they think it will fail and fall apart? Let that sink in.. Why would companies spend millions to discredit something?

    Over all what are we really talking about here? We are talking about the health and well being of Americans. We are talking about family having a policy to help with health care costs when they get sick so they don’t die. How can you be apposed to that? We are all someone’s child that did not get aborted. I guess we only matter to the GOP and the 1% when we are still in the womb.

  6. Alex says:

    This is the very best law (ACA) the lobbyist could buy, paying for it by political campaign contributions. Both Republicans and Democrats participated in this fiasco. Don’t give credit only to one party.

    • Shocked, I tell you... says:

      @ Alex: No, both Republicans and Democrats did NOT participate in this fiasco. But they are both participating in exempting themselves from the terms of it.

  7. RHWeir says:

    Uh, the thing is oil changes and new tires in the case of the human body reduce significant collisions. I doubt any health insurer would buy into that. Their deal is prevention to reduce their risk and costs.

  8. Sherry Epley says:

    We all need to remember that the ACA is a cobbled together compromise because the Republicans did everything they could to stop anything at all from passing. And, they continue to do everything they can to disassemble and destroy what did get passed. Many of the provisions could be made much better, but the obstructionist in Congress simply will not allow that to happen.

    The “low life” employers who value their greedy profit line over human beings will spend millions on finding loop holes. . . instead of paying one cent more for better health care or other benefits for their employees. The blame here goes to those employers much more than the ACA!

    • Genie says:

      @ Sherry: The blame goes to us all for not knowing what was in that bill, for leaving elected officials in office for a lifetime career, for not voting.

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