A few days ago, we broached the subject of Minimum Value Plans, and their potential role in mitigating group health insurance costs. In that post, co-blogger Nate shared with us a TPA's view of how this might play out.

At the time this whole concept hit my radar, I was invited to interview a benefits attorney with expertise in this area for another perspective. Kurt Anderson has specialized in employee benefit, and especially ERISA, plans for the past quarter century, and is co-author of a book on health care reform.

Kurt, like myself, believes that insurance should really focus more on risk-based, catastrophic events (such as illnesses or injuries) and less on predictable, routine items (such as preventive care, vaccines, etc). In fact, he offered this absolutely terrific take on the problem with mandated benefits and the ACA:

"If you can budget for it, you shouldn't have to purchase insurance for it."

This comports precisely with our own comparison of auto insurance paying for oil changes.

This led us to a discussion of how the employer mandate/tax will be enforced. To understand the current controversy, it's necessary to understand the stakes:

An employer (of specified size) that offers no group health plan is subject to a $2,080/employee fine tax penalty, period. This is called the "strong" penalty because it counts all employees.

If that same employer offers a group health plan, but that plan is either "unaffordable" or lacks "minimum value" the penalty is $3,120 per employee, but applies only to the number of full-time employees that opt out of the group plan and buy subsidized plans on the Exchange instead (and rotsa ruck with that). This is known as the "weak" penalty. What's interesting is that an employer that offers a "minimum value" plan that costs less than 9.5% of take-home pay ducks this penalty.

And that's the crux of the proposed IRS ruling: as Kurt explains it, employers want to save money while (legally) avoiding taxes, but still provide basic coverage. The problem is that, if the employer's affordable plan offers "minimum value" but that plan is so skinny that it doesn't provide coverage for hospitalization and other costs that folks need "real" insurance for, then the employee is screwed – he isn't eligible for a subsidy if he chooses to reject the skinny plan and get "real" insurance from the Exchange. By regulating that a "free oil changes only" plan can't satisfy minimum value, the IRS "fix" means that more employees would be subsidy-eligible. And from the employer perspective, it's still (likely) cheaper to pay the penalty for those employees who get subsidies than to provide and pay for more comprehensive coverage.   Win-win.

A big IB Thank You to Kurt Anderson for his time and expertise, and Joan Heider for putting us together.
 
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