IRS Bans “Skinny” Health Plans

September 10, 2015 Robert Sheen Affordable Care Act, Regulations

The Internal Revenue Service has issued proposed regulations that will require employer-sponsored health care plans to include “substantial coverage” for in-patient hospitalization and physician services.

So-called “skinny” plans that lack these coverages, and therefore cost much less than plans that include them, have been offered to employees with the claim that they meet the “minimum value” requirement of the Affordable Care Act. The IRS announced on Nov. 3, 2014, that it was evaluating the legality of such plans.

“Skinny” plans were designed specifically to produce an acceptable result when their coverages were entered into the online Minimum Value Calculator maintained by the Center for Medicare and Medicaid Services (CMS.)

The way the CMS calculator had been configured, plans with little or no inpatient hospitalization or physician coverage were shown as meeting the ACA’s “minimum value” requirement.

Employees of companies that offered “skinny” plans faced a quandary. Their employer-sponsored plan offered a little help if they had a serious injury or illness. Yet if they wanted to buy a complete health insurance plan through a state or federal marketplace they were not eligible to receive tax credits to subsidize their premiums because they were in theory eligible for employer-sponsored coverage.

The new regulations retain the requirement that plans cover at least 60% of the costs of health care services to a standard population, but now include inpatient hospitalization and physician services in the calculation.

The new rule would apply to plan years beginning after Nov. 3, 2014. However, a transition rule will not apply it before the end of a plan year beginning no later than March 1, 2015, if an employer had contracted for a non-compliant policy or had begun enrolling employees in the plan by that date.

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