Bare-Bones Health Plans Survive Through Quirk in Law

By Theo Francis
The Wall Street Journal, January 16, 2014

The health-care overhaul was supposed to eliminate insurance plans that offer skimpy coverage at cut rates. But a quirk in the law stands to help some companies keep them going for years to come.

AlliedBarton Security Services, a closely held firm that employs more than 63,000 people nationwide, has offered a modestly updated version of its so-called mini-med plan to employees this year and it intends to do so in 2015 as well, even though the cheap coverage fails to meet requirements of the Affordable Care Act.

What makes the no-frills plan attractive is that it will save money for AlliedBarton and for its security-guard employees who don’t incur substantial medical bills, many of whom want a low-cost option, according to the company.

What makes it possible under the health law: As long as companies offer at least one plan that complies with the law’s requirements, they are free to keep offering ones that don’t.

That has enabled companies to find ways to comply with the law while minimizing increases in their health-care costs. The result has been an increase in lean insurance offerings such as “fixed-indemnity” plans.

Such plans, which might cost an employee just $80 a month in premiums, generally pay a set amount for specific medical services—$70 for a doctor’s visit, for example, or $20 for a prescription—without regard to the underlying cost. They limit the amount of payments or care available in a year, and can exclude entire areas of coverage, such as mental-health care. When catastrophic injury or illness strikes, they often pay little.

AlliedBarton intends to offer its employees two low-cost insurance options—one that meets the law’s requirements for both scope of coverage and affordability, and a cheaper plan that falls short. Offering the compliant plan heads off the law’s penalties. And offering the cheaper plan—which the company thinks most of its security guards will pick—keeps costs down.

Employees who pick the cheaper plan could have to pay the individual penalty—though that could still cost them less than signing up for the more expensive plan.

Fixed-indemnity coverage “violates the spirit of the law,” said Jay Angoff, a Washington lawyer who previously headed the federal insurance-oversight office and served as Missouri’s insurance commissioner. “There’s a strong argument that it is inherently misleading, and it provides so little coverage that it shouldn’t be sold at all.” Such plans, he adds, “were never intended to survive past 2014.”

AlliedBarton’s Mr. Buckman countered that workers are good at weighing medical and financial trade-offs. “To a lot of people for a lot of good reasons, fixed-indemnity plans may be a better choice, and we think it’s appropriate for people to be able to make choices,” he said.