Employer’s won’t be able to use so-called “skinny” health plans to meet coverage requirements of the Affordable Care Act, according to a notice issued Nov. 4 by the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS).

The agencies issued Notice 2014-69, which said employers cannot use plans that sharply limit for inpatient hospital services and/or physician services to meet the “ minimum Value” requirements of Internal Revenue Code section 4980H, commonly referred to as the “play or pay” mandate.

While the notice is effective immediately, employers who had signed up for a “skinny” plan and had begun enrolling employees in it prior to Nov. 4 are exempt from its provisions until after the end of the plan year beginning March 15, 2015. Employees of these companies retain their eligibility for possible premium tax credits to purchase State or Federal Marketplace or Exchange coverage.

However, companies that had not begun the enrollment process in a minimal-coverage plan would be subject to penalties if their employees opt to obtain subsidized in a public exchange.

The emergence of the “skinny” was apparently triggered by a design flaw in an online calculator on the HHS website. The minimum Value Calculator was provided to help determine whether a plan meets the agency’s “ minimum value” criteria.

Because the calculator did not require users to input plan benefits, it classified as acceptable even plans without such fundamental benefits as inpatient hospitalization and physician services. The IRS stated that regardless the score is shown by the HHS online calculator, such plans “do not provide the minimum value intended by the value requirement”. The agency cautioned employers not to “rely solely on the MV Calculator” or any actuarial calculation in evaluating a health insurance plan.

To learn more about ACA compliance in 2021, click here.