Tag Archive: loophole

Health plan issuers could keep pre-ACA plans in place through September 2015 under Obama administration guidance

President Obama this week offered an administrative fix to quell the uproar over the imminent cancellation of health plans in the individual and small group markets that will not be compliant with coverage standards for plans effective after January 1, 2014 under the Patient Protection and Affordable Care Act.

According to a fact sheet posted at whitehouse.gov, it would allow insurers to renew their current policies for current enrollees without adopting the 2014 market rule changes. State health plan regulators would have the final say as to whether plan issuers can leave in place plans based on the pre-1/1/14 standards, which prescribe minimum essential benefits and plan actuarial value.

Plan issuers however already had the option to keep their 2013 plans in place though 2014 before this week’s presidential announcement, courtesy of what has been termed a “loophole” in existing federal regulations. I blogged about the loophole back in April. Plan issuers can use it to issue a one-year policy covering all of 2014 under the pre-1/1/14 rules as late as December 31 of this year and simply call it a 2013 plan, exempting it from Affordable Care Act standards.

With this week’s action, the administration gave plan issuers even more leeway to keep using pre-ACA plans. If the plans were in effect as of October 1, 2013, they could remain in effect through September 30, 2015 — and possibly even later — per this November 14, 2013 letter (.pdf) to state insurance regulators:

Under this transitional policy, health insurance coverage in the individual or small group market that is renewed for a policy year starting between January 1, 2014, and October 1, 2014, and associated group health plans of small businesses, will not be considered to be out of compliance with the market reforms specified below under the conditions specified below. We will consider the impact of this transitional policy in assessing whether to extend it beyond the specified timeframe.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Wall Street Journal article details how employers could continue offering “tin” coverage next year

Today’s Wall Street Journal via Yahoo News reports large employers of 50 or more employees may opt to offer mini-med or “tin” metal value health plans to workers since the Patient Protection and Affordable Care Act mandates only individual and small group plans provide coverage for hospitalization and nine other categories of essential health benefits. Moreover, the WSJ article notes, some large employers with large numbers of low wage workers may risk paying a $3,000 penalty for each employee who opts out of this coverage and instead buys richer, subsidized coverage through a state health benefit exchange that includes all essential benefits.

Limited plans may not appeal to all workers, and while employers would avoid the broader $2,000-per-worker penalty for all employees not offered coverage, they could still face a $3,000 individual fee for any employee who opts out and gets a subsidized policy on the exchanges.

But the approach could appeal to companies with a lot of low-wage workers such as retailers and restaurant operators, who are willing to bet that those fees would add up slowly because even with subsidies, many workers won’t want to pay the cost of the richer exchange coverage.

Small employers of fewer than 50 employees could also continue offering low value “tin” plans for nearly all of 2014 if payers exploit a previously reported loophole enables payers to continue offering individual and small group plans that fall short of providing essential health benefits and actuarial “bronze” metal tier value of at least 60 percent.

The low-benefit plans are just one strategy companies are exploring. Major insurers, including UnitedHealth Group Inc., Aetna Inc. and Humana Inc., are offering small companies a chance to renew yearlong contracts toward the end of 2013. Early renewals of plans, particularly for small employers with healthy workforces, could yield significant savings because plans typically don’t need to comply with some health law provisions that could raise costs until their first renewal after Jan. 1, 2014.

Low value coverage offered by large employers with sizable numbers of low wage workers runs counter to an underlying policy assumption baked into the Affordable Care Act that large group plans tend to provide relatively expansive coverage compared to small group and particularly individual plans.  Hence, the law prescribed minimum coverage standards for these plans, but not for the large group segment of the health insurance market.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health insurer worried that loophole could lead to adverse selection against exchange

A Blue Shield of California executive is urging California lawmakers in an op-ed article in today’s Sacramento Bee to close a loophole sanctioned by federal regulations that could front load the exchange marketplace with high cost individuals and families. That could leave plans participating in California’s exchange marketplace, Covered California, carrying an inequitable cost burden in the first year of its operation, asserts Janet Widmann, the health insurer’s executive vice president of markets.  It would do so by allowing plans to elect to continue to operate into 2014 under current rules that allow plans to medically underwrite applicants and reject those with potentially costly medical conditions. Unless the loophole is closed, Widmann warns, all health plan issuers would be tempted to exploit it since they could still medically underwrite and select applicants for plans sold off the exchange marketplace so as to not initially end up with a disproportionate share of high cost insureds. Widmann explains:

Since these loophole policies will enroll only those who are healthy enough to obtain coverage under the current discriminatory system, policies that meet the requirements of the new law will be left to cover a disproportionate number of less healthy people. As a result, premiums for coverage offered through the insurance exchange will be significantly higher. Even insurers that have supported reform and want to see the exchange succeed will be pressured to sell the loophole policies to avoid losing healthy customers to competitors.

Plans sold in the Covered California marketplace would be unable to exploit the loophole under policy adopted by Covered California last week requiring qualified health plans with which it contracts to terminate plans they currently offer that are not compliant with the Affordable Care Act as of December 31, 2013.  The “level playing field” provision is at section 3.04(b) of the Covered California QHP Model Contract:

(b) Contractor agrees that, to the extent not already required to do so by law, effective no later than December 31, 2013, it shall terminate or arrange for the termination of all of its non-grandfathered individual health insurance plan contracts or policies which are not compliant with the applicable provisions of the Affordable Care Act. Contractor agrees to promote ways to offer, market and sell or otherwise transition its current members into plans or policies which meet the applicable Affordable Care Act requirements. This obligation applies to all non-grandfathered individual insurance products in force or for sale by Contractor whether or not the individuals covered by such products are eligible for subsidies in the Exchange. All terminations made pursuant to this section shall be in accord with cancellation and nonrenewal provisions and notice requirements in California Health and Safety Code Section 1365, California Insurance Code Sections 10273.4, 10273.6 and 10713, and relevant state regulations and guidance.

Last week, California enacted two bills, ABX1-2 and SBX1-2, establishing 2014 market rules for the individual and small group markets and conforming state law to Affordable Care Act provisions. The measures did not include a provision that would close the loophole. Widmann suggests legislation mandating all non-grandfathered health plans (those not in effect when the Affordable Care Act was enacted in March 2010) play under the 2014 market rules barring medical underwriting of applicants.  That would require new special session or urgency legislation that would take effect before the end of 2013.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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