The Skinny on Bare-Bones Insurance Options

by Adrianna McIntyre

CORRECTION (05/23/2013): After corresponding with a colleague, I’ve untangled the out the “out-of-pocket” requirement and discovered that it would not provide the kind of protections that I’d previously thought. “Out-of-pocket” is something of a misnomer here, which is the root of my misunderstanding; “cost-sharing” would be a more appropriate descriptor. The limits on medical expenses are limited to those services covered by the plans. This is counterintuitive (bordering on the illogical), as many—probably a majority—of the services covered by these plans will be of the no-copay preventive care variety, meaning there will be little occasion for patient expenses to accrue. Strange as that sounds, it’s true.

It remains the case that many of these patients ought to qualify for subsidies on the exchanges, and businesses that don’t self-insure will be subject to state-level requirements. This is all pretty deep in the legal weeds, but I hope to work up a post next week teasing this all out. I stand by my conclusion—albeit less enthusiastically—that these plans are better than no coverage at all. 

Large employers who hire low-wage workers—think big-box retail, fast food, and other jobs that aren’t likely to have generous benefits—might not provide comprehensive insurance plans to their employees in 2014. Instead, they could offer “bare-bones” options that don’t include the full menu of “essential health benefits” required on state exchanges. And however you feel about that based on principle, legally they seem to be in the clear. The Wall Street Journal covered this on Sunday, but their piece only tells part of the story.

Size matters, but self-insuring could matter more. Large employers that contract health benefits through an insurer can skip some of the Affordable Care Act’s requirements, but would still be subject to state requirements on top of new ACA rules. These requirements vary from state to state, so it’s hard to stipulate how large-employer insurance would size up against coverage required on the exchanges (for example, Michigan requires insurers to cover therapy for autism, which isn’t a mandated service under the ACA). Size does matter if you’re in a state where insurance regulations are weak, and employers can easily skimp on coverage. But self-insured employers—large or small—can evade many of the health law’s provisions and totally skirt state regulation.

In the jargon of employer-sponsored benefits, “self-insurance” refers to a business covering its own employees instead of contracting that responsibility out to an insurance company. The employer shoulders a bigger risk, because it’s their money on the line—not an insurer’s—if employee health costs run higher than anticipated. These plans are regulated by the federal government under a law called ERISA, which supersedes state regulations. Large employers favor this arrangement because they can offer coverage that is consistent across state lines. Companies with loads of employees are also better at predicting health costs, which is why we tended to see self-funded plans concentrated among large employers. That might change if companies view the option as a mechanism to “escape” health reform.

It isn’t total escape, though. The WSJ’s coverage implied that Obamacare only requires plans to cover preventive services and abolish coverage caps (where an insurer limits maximum payout over a year or lifetime). In reality, the ACA demands a little bit more—and the new rules apply to all insurance, regardless whether an employer is large or small, self-insures or doesn’t. Per the Kaiser Family Foundation (emphasis added):

The new health reform law contains many provisions that apply nationally to both self-funded plans and fully insured plans. Some of these provisions include the extension of dependent coverage until age 26, no cost sharing for preventive services, the limit on waiting periods to no more than 90 days, maximum patient out-of-pocket costs, and no lifetime or annual limits on coverage. However, self-funded plans will not be subject to meeting the minimum essential health benefit requirements.

 That bolded sentence doesn’t encompass essential health benefits, but it does a fair amount of heavy lifting. The preventive services covered without copay are relatively comprehensive, including various screening and counseling services, with additional coverage for women’s and children’s health. And considering the cost of hospital care, that annual limit on out-of-pocket costs strikes me as especially important (emphasis added):

The out-of-pocket maximums will be the same as those for health savings account-qualifying high-deductible health plans in 2014, which will be identified later this year (2013 maximums are $6,250 for single coverage and $12,500 for family). Thus, a group health plan using a single vendor to administer claims must implement a unified out-of-pocket maximum beginning with the 2014 plan year for all in-network copays, coinsurance and deductibles across all categories of covered expenses under the plan.

Such plans come with policy implications. This coverage has obvious flaws; for many individuals, $6,000 in medical expenses would prove catastrophic. But the out-of-pocket maximums are modeled on other types of coverage and suggest that these plans would function like a high-deductible plans without the health savings accounts. With the preventive services, this coverage might still be more comprehensive than a mini-med plan—and is certainly a step above being uninsured.

The WSJ asserts that individuals who want more generous coverage could still seek that out on state exchanges. And they also note the major policy implication tucked into all of this: sicker individuals would be more likely to seek out that coverage than their healthy counterparts, which could lead to riskier insurance pools and higher premiums on the exchanges. Because of the federal subsidies, that cost would be borne by individuals and taxpayers.

That said, with the annual limit on out-of-pocket costs, I don’t know if the situation is quite so dire for individuals as the WSJ piece paints it. It’s a policy quirk to watch (something there’s no shortage of with ACA implementation), but I consider these “bare-bones” plans, at a minimum, better than the barer—or total lack of—coverage they’re replacing.

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Adrianna works in clinical research and is a graduate student in public policy & public health at the University of Michigan. Follow her on Twitter @onceuponA.

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One thought on “The Skinny on Bare-Bones Insurance Options

  1. Employer Requirement says:

    The other requirement not discussed in the articles is all employer-sponsored coverage must also meet the requirement to cover 60% of the actuarial value (AV) of health care expenses the plan covers for a typical group of enrollees.

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