Obamacare Glitch Lets Employers Offer Substandard Insurance

Employers are taking advantage in flaws in the Obamacare calculator for ensuring the healthcare plans they offer meet federal standards, and as a result they're offering plans that lack vital benefits such as hospitalization coverage, insurance brokers and consultants say.

Companies who are enrolling workers for coverage next year are offering inexpensive plans that allow them to avoid penalties for not offering any coverage at all, reports Kaiser Health News.

Such a strategy "flies in the face of Obamacare," Liz Smith, president of employee benefits for Illinois-based insurance brokerage Assurance said.

But workers have little choice rather than to accept their employers' substandard plans as no federal tax credits are available for people who can buy insurance through their companies' approved plans.

The minimum-value calculator is an online tool offered by the Health and Human Services Department that self-insured employers can use to certify that their plans pass federal standards that require they pay at least 60 percent of the expected medical costs of a typical plan. Employers that can pass the calculator's ratings, can avoid being fined as much as $3,000 per uninsured employee in 2015.

To use it, the employer checks off boxes that indicate what benefits their plans cover, such as mental health care, pharmacy coverage, and hospitalization, and adds in the workers' share of their healthcare costs. The tool then combines the figures to determine if the plan offers enough coverage to be determined adequate under Obamacare.

"There are a lot of errors in the calculator," said Shannon Demaree, director of actuarial services at insurance broker Lockton Companies. "It allows more plans to pass as qualifying coverage than we believe really do."

Companies that have not offered benefits before Obamacare required them to are most likely to sign up for new plans. Assurance says about 30 companies have asked for bare-minimum plans. American Worker Plans, another Illinois broker, says about 30 companies have sought such coverage, according to Senior Vice President Jon Duczak.

Assurance and American Worker Plans both said they are cautioning employers about using some of the lower-coverage plans.

Independent actuary Hobson Carroll, who works closely with self-insured employees, said that he believes HHS was "somewhat naive" when it did not realize "people were going to game the heck" out of their calculator."

According to Kaiser, companies that self-insure take on most of the risk of covering workers' health costs, but usually outsource the insurance to brokers like Assurance.

"Employers who offer these types of plans as the only option for their employees really need to search their consciences," said Sabrina Corlette, project director for Georgetown University's Center on Health Insurance Reforms.

Benefits experts stressed that most will offer traditional coverage, including hospitalization.

But temporary staffing firms are especially interested in lower-value plans that may not include hospitalization, said Brian Robertson, executive vice president at Fringe Benefit Group, which recently bought the American Worker Plans.

One example is a minimum-value plan that lacks inpatient benefits and costs employers about $200 per month per worker, or about half the price of similar coverage with hospital benefits.

And while by HHS standards such plans work, the plans fail on a calculator used by the private sector, according to tests conducted by Lockton. One such plan tested at 63 percent on the HHS calculator, passing standards, but an industry calculator gave it 47 percent, a failing grade.

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