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How Large Companies Are Exploiting a Loophole in Obamacare

"Skinny" health insurance plans make a mockery of the Affordable Care Act


In June 2014, Mary Gass, a 55-year-old employee at a nursing home in Inman, South Carolina, was lifting an elderly resident out of his bed when she felt a sudden, sharp pain in her neck followed by what she described as a burning numbness. For weeks, the pain worsened, leaving Gass unable to perform many of the everyday tasks for the elderly and infirm people she cared for. After several months, her doctor advised her to take leave from her job in order to treat a bulging disk in her neck that was impinging on the nerves in her upper spinal cord. She would need surgery to repair the disc, but the operation was standard enough to be done at the local Hospital in nearby Spartanburg.

Yet just weeks before her planned surgery, Gass—whose income was dedicated primarily to basics, like food and rent, and who also played a crucial role in supporting her disabled daughter—says she was stunned to learn that her employer-sponsored healthcare plan provided by an Indianapolis-based company called Key Benefit Administrators would only contribute several hundred to the surgery, which would potentially cost up to $20,000. For years, Gass had been accustomed to being fully protected against such large bills. “I had been covered for all these years before,” Gass said. “But this stopped the ball in middle of the road—it wouldn’t cover crap.”

 Earlier that year when the Affordable Care Act (ACA) began requiring that large employers provide health insurance to their employees, the nursing home where Gass worked had began pushing a new insurance plan called KeySolution, which was being offered by Key Benefit Administrators. The company offers what is known as a “skinny plan,” which exploits what many consider to be a loophole in the language of the ACA that allows employers to offer employees insurance that covers strikingly little.

One of the central promises of Obama’s signature healthcare law was to prevent Americans from going broke paying for essential healthcare procedures. But some of the country’s largest health insurance companies—including healthcare behemoth UnitedHealthcare—have developed and marketed a variety of plans similar to Gass’s that allow employers to avoid the expense of doing just that. The plans exist in a legal gap area that only applies to large employers and often cover only preventative care options such as check-ups but not things like hospitalization and surgical operations—the very items that carry the bank-breaking costs from which Obamacare was intended to shield low-income Americans. Employees like Gass are exposed to bankruptcy-causing medical bills as if they had no insurance at all.

A Key Benefit Administrators document—which was posted online by an Oklahoma-based temporary staffing agency—shows in explicit detail just how little the plan covers. Some examples of healthcare items not covered by the KeySolutions plan, according to the document, are a primary care “visit to treat an injury or illness,” diagnostic tests, hospital stays, emergency care, and both generic and brand drugs. The plan does cover preventative care, screenings, immunizations and prenatal exams.

A 2014 “webinar” about skinny plans that was jointly presented by UnitedHealthcare and an insurance brokerage and consultancy called Crawford Advisors, lauds the cost-effectiveness of the plans, as I’ve previously reported. Employers “can offer preventive-care benefits like doctors’ visits and generic drugs without offering much in the way of care,” states the Crawford Advisors portion of the presentation, “and they are considered to be offering insurance coverage.”

A simple Google search for skinny plans, also known as “Minimum Essential Coverage” plans, shows numerous firms selling them. Many of the skinny plan descriptions available online trumpet the fact that the plans offer more than 60 preventative care options but are far more vague in addressing the larger universe of healthcare options that the plans do not cover.

Several firms that promote skinny plans online did not respond to requests for interviews. One broker who responded said that he would only consent to an interview under the guarantee that the article would present the plans in a favorable light. (I said no.) Citing confidentiality, Key Benefit Administrators declined an interview request regarding its skinny plan and did not answer a list of questions sent by email. 

But, in general, insurance brokers who sell the plans argue that low-wage employees jump at the opportunity to buy the inexpensive coverage, which prevents them from getting fined for having no insurance at all under the ACA’s individual mandate.

Labor groups fear that many employees, believing that they are entitled to certain protections under the new health law, will enroll in the skinny plans from their employers without understanding just how minimal the coverage is. (Voices within the industry have also expressed this concern.) “It violates the spirit of the law: that everyone needs to contribute in order to have a functional health care system,” said Anthony Wright, The Executive Director of Health Access California, a statewide advocacy coalition for consumers in healthcare. “To allow some employers to exploit loopholes, that’s unfair to their competitors.” Wright even objected to the common term for the plans. “‘Skinny’ is too kind a word for them,” Wright said. “This just fundamentally isn’t coverage. It’s junk. It’s fake. It doesn’t provide what people understand coverage to be.”

State lawmakers have taken notice. In October, California governor Jerry Brown signed into law a bill, lobbied for by Health Access, that bans skinny plans. (The year before, Brown had vetoed a similar law, which also had backing from a coalition of labor organizations, after opposition from the state’s insurance industry.)

Under the ACA’s employer mandate, any large business that does not offer its employees health insurance that satisfies the health law’s “minimum essential coverage”—that is, an array of preventative care options that all insurance plans must help cover—will be exposed to an automatic $2,000 fine per employee. If the employer offers insurance that contains these preventative basics but does not meet the minimum standard of affordability for real medical care—i.e. a skinny plan—the employer is liable for a $3,000 fine but only for each employee who foregoes the plan and instead goes to a state healthcare exchange for subsidized insurance. And the companies are wagering that most workers won’t forgo the company plan, however poor it is, Thus, employers have a direct financial incentive to flout the law.

Employers can dodge even the lesser penalty by offering employees the option of purchasing an add-on plan to bring the skinny plan into the compliance with Obamacare’s affordability metric. Heading into the new year, this appears to be the prevailing strategy for skinny plans. Gass said that she could have bought a skinny plan add-on, but did not fully grasp how exposed the original plan left her and did not opt for the additional coverage.

Gass was unable to afford the surgery and had to stop working. She now lives off of public disability payments, and hopes to enroll in Medicaid next year, a step which she believes is not guaranteed to help her pay for the surgery she still needs. “It’s been devastating,” Gass said. “‘You don’t know what your gonna do; it’s like your holding onto a rope and you’re about to fall off.”