May 30, 2013 – The Wall Street Journal on May 20th ran a news story describing a strategy that an increasing number of employers are reportedly examining – especially self-insured employers – that involves offering a low-cost health plan covering only preventive health services.  As the article indicated, in essence, offering this type of low-cost – or “skinny” – plan does not violate the law.  More specifically, employers subject to the so-called employer mandate would not be subject to the punitive first prong of the employer mandate penalty tax (often referred to as the “no-coverage” penalty).  In other words, these employers would be found to be offering “minimum essential coverage,” and thus would avoid the penalty tax, provided the employer offered these low-cost, skinny plans to at least 95% of its full-time employees and their dependent children (under age 26). 

This article has generated multiple inquiries, so SIIA has prepared the following analysis to make sure its members are fully-educated on this subject matter.  Should you have additional questions, please contact SIIA Washington Counsel Chris Condeluci at 202/463-8161, or via e-mail at  ccondeluci@siia.org.

Introduction

So, how are “skinny” health plans permissible under the Patient Protection and Affordable Care Act (PPACA)?  To understand how offering a low-cost, skinny plan does not violate the law, thereby allowing an employer otherwise subject to the employer mandate to avoid a penalty tax, we must piece together various aspects of PPACA, starting with the definition of “minimum essential coverage,” and explain why this definition is so important.

“Minimum Essential Coverage” and the Individual Mandate

PPACA generally requires all individuals (and their dependents) to maintain “minimum essential coverage” each year.  “Minimum essential coverage” includes health insurance coverage provided under (1) a governmental program (e.g., Medicare, Medicaid, SCHIP, or TRICARE), (2) an employer-sponsored plan (i.e., a group health plan), (3) individual coverage offered by a health plan in the individual market, (4) “grandfathered” individual or group market coverage, and (5) any other coverage as specified by the Department of Health and Human Services (HHS).  If an individual (and their dependents) fails to obtain “minimum essential coverage,” the individual will be subject to a penalty tax for himself/herself (and their dependents, if any), unless a specific exemption from the penalty tax applies. 

Why Is This Important To Employers Interested In Offering Low-Cost, Skinny Plans? 

Recently proposed regulations implementing the individual mandate penalty tax indicate that an employer-sponsored plan (i.e., “minimum essential coverage”) is a “group health plan” as defined under the Public Health Services Act (PHSA).  The PHSA provides that a group health plan means an “employee welfare benefit plan” as defined under the Employee Retirement Income Security Act (ERISA).  ERISA defines an employee welfare benefit plan as “any plan, fund, or program…established or maintained by an employer…for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, medical, surgical, or hospital care or benefits…”

A plan that covers preventive health services only would be considered a plan, fund, or program established and maintained by an employer that provides medical care or benefits through the purchase of health insurance or otherwise.  As a result, a low-cost, skinny plan would be considered a group health plan under the PHSA, and thus, “minimum essential coverage” for purposes of PPACA.  Therefore, an individual employee (and their dependents, if any) covered under this type of arrangement (i.e., a low-cost, skinny plan) would satisfy the individual mandate requirement and would not be required to pay a penalty for the year.

“Minimum Essential Coverage” and the Employer Mandate

Nothing under the PPACA requires an employer to offer health coverage to its employees.  Providing an employee benefit (i.e., health insurance coverage) is still voluntary.  But, an employer employing 50 or more “full-time equivalent employees” (FTEs) will be subject to a penalty tax if (1) it does not offer “minimum essential coverage” to at least 95% of its full-time employees and their dependent child(ren) under age 26 (known as the “first prong” of the employer mandate) or (2) the employer offers “minimum essential coverage,” but the coverage (a) is “unaffordable” (i.e., the employee contribution for the lowest cost self-only health plan exceeds 9.5% of the employee’s household income (or certain other “safe harbor” measures) or (b) does not provide “minimum value” (i.e., the plan fails to pay at least 60% of the cost of benefits under the plan) (known as the “second prong” of the employer mandate).

The employer mandate penalty tax is only triggered if a full-time employee purchases an individual market health plan through an Exchange created under PPACA and accesses the premium subsidy for health insurance now available under the law (provided the employee is eligible based on income).  Importantly, the amount of the penalty tax depends on whether the employer is offering “minimum essential coverage” or not.  For example, if an employer fails the first prong of the employer mandate, the penalty tax is equal to $2,000 times all of the employer’s full-time employees (minus 30).  Under the second prong, the penalty tax is equal to $3,000 for every full-time employee that accesses the premium subsidy.

Why Is This Important To Employers Interested In Offering Low-Cost, Skinny Plans?

As the first prong of the employer mandate indicates, if an employer is not offering “minimum essential coverage” to at least 95% of its full-time employees and their child dependent(s), the employer may be subject to a penalty tax equal to $2,000 times all of the employer’s full-time employees (minus 30).  For employers employing a significant number of full-time employees, this penalty tax could be substantial.  However, if an employer offers a low-cost, skinny plan to at least 95% of its full-time employees and their child dependent(s), the employer can avoid substantial penalties because – as discussed – this type of arrangement would be considered a group health plan for purposes of the PHSA, and thus, “minimum essential coverage” for purposes of PPACA, including the employer mandate.

Would an Employer Offering a Low-Cost, Skinny Plan Avoid All Penalties Under the Employer Mandate?

No.  As stated, under the second prong of the employer mandate, if an employer is offering “minimum essential coverage,” but the coverage is unaffordable or does not provide minimum value, the employer would be subject to a $3,000 penalty tax for every full-time employee that purchases an individual market health plan through an ACA-created Exchange and accesses a premium subsidy for health insurance.  In the case of a low-cost, skinny plan, this arrangement would in most, if not all cases, be affordable.  However, this type of arrangement would not satisfy the minimum value test. 

According to regulations issued by HHS and the Department of Treasury (Treasury), while a self-insured plan is not required to provide coverage for the “essential health benefit” categories, the plan’s minimum value is measured with reference to benefits covered by the employer that also are covered in any one of the “essential health benefit”-benchmark plans adopted by a State.  In other words, a plan’s anticipated spending for benefits provided under any particular “essential health benefit”-benchmark plan for any State counts towards the plan’s minimum value.  An “essential health benefit”-benchmark plan covers more than just preventive health services.  Therefore, a low-cost, skinny plan would not provide minimum value, thereby exposing the employer to a penalty tax in the event a full-time employee accesses the premium subsidy.

Will Federal Regulators Try to Restrict Skinny Health Plans Going Forward?

As the Wall Street Journal article indicates, Federal agency officials have stated that employers may offer a low-cost, skinny plan and at least avoid the first prong of the employer mandate.  But, the Federal regulators are certainly not approving of this practice.  Which begs the question, will the Federal regulators try to shut this practice down?  If they do, how can they do it? 

SIIA believes that the Federal agencies may conclude that this type of practice violates the new nondiscrimination rules that apply to fully-insured group health plans.  To date, the Federal government has not issued regulations detailing these rules.  In the case of self-insured plans, this practice may already violate the nondiscrimination rules applicable to self-insured arrangements under section 105(h) of the Internal Revenue Code (“Code”).  If not, contemporaneous with the issuance of the new nondiscrimination rules for fully-insured plans, Treasury may add to the current regulations under Code section 105(h), providing that offering low-cost, skinny plans could be discriminatory in certain instances. 

Only time will tell whether this Administration will attempt to use the nondiscrimination rules applicable to both fully-insured and self-insured group health plans to put a stop to this practice.  Until then, it appears that offering a low-cost, skinny plan is a viable strategy when it comes to an employer’s overall approach to offering health insurance benefits to its employees and complying with the new requirements under PPACA, including the employer mandate.  

That said, SIIA is not commenting on the relative merits of this approach at this time.  The purpose of this communication is simply to educate its members in order that they understand what is happening in the marketplace and potential regulatory responses.  Please watch for additional exclusive reporting as developments warrant.

As you may recall, Maine recently introduced a bill, Maine Legislative Document 756, which attempted to eliminate Med Pay subrogation claims.  This bill was recently amended to allow for the limited pursuit of subrogation claims.  The new language would allow the casualty insurance policy to provide for Med Pay subrogation rights or priority over the insured when the insured’s awarded or settled damages exceed $20,000. 

Although, the amended language is restrictive and does not allow for the pursuit of all Med Pay subrogation claims where there is a responsible party, it does allow a carrier to pursue claims where the insured has settled with the tortfeasor or been awarded damages of more than $20,000.  

Additionally, the amended language purports to give the carrier priority over the insured on allowed claims.  This suggests the insured would not be able to assert the Made Whole Doctrine as a defense to the carrier’s right to recover.  The bill appears applicable to only those cases where the insured is pursuing a claim against the responsible party.

You already know that an employee benefit plan qualified as a “government plan” is exempt from ERISA’s framework.

But what is the definition of “government”? Some employers may not actually be government entities, and public private partnership may inject ERISA back into the framework.

This new case gives you the tests to apply to determine whether a government entity exists, which then means ERISA does not apply.   Smith v. Regional Transit Authority, __ F. Supp. 2d __ (E.D. La. May 10, 2013) [PDF] (whether the entity was created directly by the state, so as to constitute a department or “administrative arm” of the government, or whether it was merely administered by individuals responsible to public officials or the general electorate).

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Texas House Bill 1869 and the companion bill, SB 1339 in the Senate, are being rushed through committees. One of our members has personally met with representatives in both the House and the Senate, but these bills appear to be gliding through committees without opposition. These bills severely limit the recovery amounts health insurers can collect from third party settlements through subrogation. NASP continues to urge its members to oppose these bills.
The Senate has set its version of the bill for public hearing in Austin before the State Affairs Committee for Monday, April 15th at 9 a.m.  Any member, carrier, employer or administrator doing business in Texas is strongly encouraged to attend the hearing and testify against the bill.  If you are a Texas resident, please contact your state Senator or Representative to express your opposition to such a restriction on subrogation rights.

NASP will be hosting a free webinar discussion regarding the bill for our members on Friday April 12, 2013 at 2:30 EST.  The purpose of this webinar is to go over the proposed bill at the hearing on Monday, April 15, 2013.  Please click here to register for the Webinar on our Webex site.

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March 12, 2013 – Utah has become the fourth state that is considering legislation that would make it more difficult for employers to operate self-insured group health plans by restricting the availability of stop-loss insurance.

Known as the Small Employer Stop-Loss Insurer Act, HB 160 applies to groups with 50 or fewer employees. Unlike stop-loss legislation in California, Minnesota and Rhode Island, attachment point requirements in this bill are not onerous, but does contain a provision requiring stop-loss carriers to pay claims incurred but not reported if the plan terminates. The bill would also prohibit lasering.

Other provisions include:

• Insurance Commissioner will create a standard stop loss application form for small groups
• Policy must guarantee rates for 12 months – only exception is to price for a change in benefits of the Plan
• Specific and aggregate coverage required
• Requires the stop loss to provide gapless coverage
• Minimum specific attachment point = $10,000
• Minimum aggregate corridor = 90%
• Contract basis no less favorable than 12/24

This is a developing story so please watch for further exclusive reporting from SIIA. The full text of HB 160, as well the other state stop-loss bills can be accessed on-line through the members’ only section of the association’s web site at www.siia.org. Please contact SIIA Chief Operating Officer Mike Ferguson at 800/851-7789, or via e-mail at  mferguson@siia.org should you have any questions or would be interested in helping to oppose the legislation in Utah.

Texas House Bill 1869 seeks to limit health subrogation recoveries! The bill allows a carrier to create the right to subrogation or the right to reimbursement by contract. However, the bill restricts the amount a carrier may recover to the lesser of the following:

a. one third of the insured’s total recovery; or
b. the total amount of benefits paid;
Additionally, the bill allows an insured to file a declaratory judgment action in an attempt to reduce the subrogation right or right to reimbursement even further. If the court finds the insured’s total recovery is less than 50 percent of the insured’s total damages, the carrier’s recovery shall be limited to an amount not less than 15 percent and not more than one-third of the insured’s total recovery. However, if the insured proves by clear and convincing evidence that the carrier’s recovery of an amount otherwise payable under this bill would result in a “recognized injustice”, the carrier’s recovery shall be limited to an amount that is less than 15 percent, but equal to or greater than 5 percent of the injured party’s recovery.

The bill clearly limits the carrier’s recovery to no more than one-third of the injured party’s recovery under any circumstance. But, even more alarming the broad language in the statute gives the court discretion to limit the carrier’s recovery to an amount less than 15 percent but not less than 5 percent of the injured party’s recovery.

The bill also requires a carrier, who is not actively represented in a third party action, to pay an attorney’s fees in accordance with the fee contracted for by the insured, as well as a pro rata share of expenses. If a contract does not exist, the court shall award reasonable attorney’s fees, not to exceed one-third of the payor’s recovery. If the court reduces the subrogation carrier’s recovery pursuant to a declaratory judgment action provided for in this bill, no fees or costs would be owed under any theory of law, including the common fund doctrine. An injured party shall not be required to pay fees or costs for filing a declaratory judgment action to reduce a carrier’s recovery amount.

This bill applies to claims or causes of action for personal injuries caused by the tortious conduct of a third party. The made whole doctrine does not apply to recoveries addressed under this bill. The provisions in this bill control in the event of any conflict in the law, including a rule of procedure or evidence. If enacted the bill would take effect January 1, 2014.

Thanks to Loren Smith with Kelly, Smith & Murrah, P.C in Houston, Texas and Ryan Woody with Matthiesen, Wickert & Lehrer, S.C. in Hartford, Wisconsin for identifying and submitting the above bill.

Additional Bills of Interest

Two bills have emerged in Texas, House Bill 1773 and House Bill 1810, which would prohibit insurance carriers from selling “named driver policies” and “permissive driver policies”. Named driver policies provide coverage, only for specifically named drivers and not for household members. Permissive driver policies exclude drivers who have received permission to drive the insured’s vehicle from receiving coverage under the policy.

Too often these policies are issued and an insurance card is copied and provided to everyone driving the vehicle. However, if the driver is in an accident and is not the “named insured”, the carrier denies coverage. Texas is proposing bills that would prohibit these policies from being issued.

Thanks to Laura Schmidt with Downs & Stanford and NASP Board Member for submitting and summarizing these bills for NASP.

Florida House Bill 897 and its companion, Senate Bill 1134, (the “Patient Injury Act”) would create a Patient Compensation System relative to avoidable personal injury or wrongful death due to medical treatment, including missed diagnosis. Any compensation paid under the Patient Compensation System would be offset by any past and future collateral source payments. Collateral sources include payments made by or pursuant to Medicare, Medicaid, health insurance, automobile insurance providing health benefits, disability insurance and workers’ compensation insurance. If enacted, the bill would become law on July 1, 2013.

Georgia Senate Bill 141 seeks to create a Patient Injury Act and redefine how medical malpractice cases are handled. It is virtually identical to Florida House Bill 897 and Senate Bill 1134.

Georgia House Bill 336 clarifies the requirements on an offer to settle prior to filing a lawsuit. Any settlement offer in a motor vehicle personal injury or wrongful death case in which the claimant is represented by an attorney shall include certain provisions relative to the time for acceptance, the amount to be accepted and the release to be provided. The recipient of an offer would have the ability to seek clarification regarding subrogation claims and other relevant facts. If enacted, the law would apply to motor vehicle personal injury and wrongful death claims arising on or after July 1, 2013.

Illinois House Bill 1460 would create the Motor Vehicle Ancillary Products Act. A motor vehicle ancillary product is defined as “a protective chemical, substance, device, system, or service that (i) is installed on or applied to a motor vehicle, (ii) is designed to prevent loss or damage to a motor vehicle from a specific cause, and (iii) includes an ancillary protection product warranty.” Examples of ancillary products include “protective chemicals, alarm systems, body part marking products, steering locks, window etch products, pedal and ignition locks, fuel and ignition kill switches, and electronic, radio, and satellite tracking devices” but “does not include fuel additives, oil additives, or other chemical products applied to the engine, transmission, or fuel system of a motor vehicle.” The bill expressly allows for an indemnification or subrogation claim brought by the ancillary product insurer against the provider of the ancillary product.

Kentucky Senate Bill 116 seeks to clarify the credit available to an underinsured motorist carrier when two or more individual claims are made against the bodily injury liability policy. If the two or more individual claims exhaust the bodily injury policy limits, the underinsured motorist carrier is only entitled to a credit for the actual settlement amount received by the individual seeking underinsured motorist benefits.

Maryland is considering the adoption of comparative fault! Maryland House Bill 1182, the Maryland Fault Allocation Act, would, while retaining both the contributory negligence and joint & several liability rules as they currently exists under common law, create a Commission to study the state’s Fault Allocation System. The Commission is to be comprised of various legislators, attorneys, law professors, state officials and business officials and is to be charged with studying whether to retain Maryland’s current fault allocation rules or to modify them. If the Commission recommends the adoption of comparative fault, it must also make a recommendation regarding the effect of comparative fault on workers’ compensation subrogation claims. The Commission shall report its findings and recommendations no later than December 1, 2013 to both the Governor and the General Assembly.

Maryland House Bill 1089 and Senate Bill 919 would grant a rental car company a subrogation right against a renter, the renter’s insurer, a driver and the driver’s insurer “for property damage, personal injury, and wrongful death claims paid by the rental vehicle company that arose out of the use or operation of the motor vehicle by the renter or driver. “ The bill would take effect on October 1, 2013 if enacted.

Thanks to Chris Sutton with Nationwide Insurance for identifying and submitting these bills.

Maryland House Bill 1117 would create a no fault coverage for automobile medical expenses with a minimum limit of $1,000. A carrier providing benefits under the coverage would not have a right of subrogation or a claim against the tortfeasor.

If an insured has both, medical payments coverage described in the bill and coverage from a collateral source provider, the insurers may coordinate benefits to avoid duplication of coverage. Also, the insured can coordinate the policies by electing which is primary or may reject coordination of the policies (the latter will likely cause the insured to pay a higher premium). If enacted, the bill would become effective
October 1, 2013.

Kammy Poff, Amicus Chair
Joseph Willis, Legislative Affairs Chair

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