We should not let Congress dismiss the concept of “Skinny Plans”. They may be just what every small employer in America needs. Here’s why!

The term “skinny plans” was being floated, promoted, applauded and battered about in Washington DC several weeks ago but politicians and pundits alike were missing the key point. And as usual, attaching a name that promotes a negative connotation to a reasonable idea has caused the facts to get obscured.

No one has pointed out the potential advantage Skinny Plans bring for tens of millions of Americans who get their health insurance through their employment. Nor has anyone promoted how this idea of a “basic coverage” could provide the means for small and medium size employers to provide better benefits at lower costs. Certainly lower cost than is available through ACA qualified Metallic Plans.

Employers could utilize these so-called Skinny Plans as platforms upon which to build plans with better benefits than ACA Platinum Plans but at lower cost than ACA Silver or Bronze plans.
Are you kidding?

Nope, it’s been done before and “skinny plans” could provide the be-all save-all solution to the crisis facing every small employer: the prohibited cost of providing a health plan for its employees.

The rhetoric surrounding the healthcare reform debate and specifically this issue of Skinny Plans ignores the fact mentioned earlier that the majority of Americans get their health insurance provided to them by their employer.

Small and medium size employers provide group health plans for their employees for a number of reasons. It’s critical to remember that the most compelling reason why employers bare this cost is that they must provide a group health plan in order to compete for and retain good employees. Without good employees no employer can stay competitive nor will it stay in business.

So, how can these Skinny Plans be helpful for employers? It’s pretty simple actually!
Employers will implement an HRA (Health Reimbursement Arrangement) to enrich the benefits of the Skinny Plan or provide benefits not covered by the Skinny Plan. It’s been done for years for employers and was perfected in California.

A qualified TPA can lead any employer through the process of choosing a Skinny Plan (or ACA Bronze plan now), which lowers the premium costs 30-50%, then implement the HRA with the extra benefits the employer wishes to provide.

The key to the HRA Plan’s success (by success we mean reducing the employer’s costs while providing rich benefits) is that most people in America don’t actually use much healthcare in a given year. A few years ago, the Kaiser Foundation released an extensive study demonstrating that 85% of covered people incur less than $1,000 per in in healthcare expenses per year. Look around you at the people you know and you will see that their study’s outcome makes sense.

In addition, the data analysis from a prominent TPA, in California, proves that fewer than 5% of any group of people will incur enough charges in a calendar year to meet the high deductible plans sold as Bronze plans today. Interesting, isn’t it?

So, the result of buying a Skinny Plan and adding an HRA is:

  • Premium costs would be 30-50% lower.
  • Employers will only incur HRA claim costs if a claim is incurred.
  • Employers can offer richer benefits with HRAs.
  • All employees, and their dependents, will enjoy richer benefits.
  • Employees are better able to afford adding dependents to their plan.
  • Providers will get paid by TPA on behalf of the employers.
  • Providers will then be happy which is important for members.
  • The TPA will make it easy for employers & employees.

Starting in 1996, way before the ACA, small employers in Ca. enjoyed success with this type of health plan and actually saw their healthcare costs reduced and stabilized.

The Skinny Plan with HRA concept will work so don’t be fooled by the opponents who argue that Skinny Plans will increase premiums for everyone else. They will not!
The viability of the Skinny Plan idea is in the small and medium size employer market so they would be available only in employer sponsored group plans.

The individual plans have been causing all of the hoopla for the media with the need and affects of guarantee issue and no pre-ex on premiums and insurers. So, if you hear the doom and gloom rhetoric from opponents of the Skinny Plans don’t be alarmed because now you know there is a solution, an employer driven solution, actually.

Plus, let’s be honest, the GOP probably won’t be able to get anything passed anyway.
Sorry for that editorial comment. But, if the GOP does fail with its R&R effort then it could circle back around with a simple bill, to amend the ACA, that would allow insurers to offer Skinny Plans. I know, its simple, right?

We know this approach will work because it worked so well lowering premiums in California that a number of carriers tried to restrict Employer’s access to HRAs forcing one TPA to take legal action. We’ll talk more about that in the future.

Let me know what you think because as you’ve heard, we’re all in this together!

Until next week.

Mark Reynolds, RHU

2 Responses to “We should not let Congress dismiss the concept of “Skinny Plans”. They may be just what every small employer in America needs. Here’s why!”

  1. Mark Reynolds, RHU Says:

    Great idea, huh?

  2. Aaron Says:

    Okay, I’ll bite. I’ve seen the strategy you’re suggesting work time and time again here in California. However, do you think that this is something that could work if it was adopted en masse as you suggest? It seems to me that it is an effective strategy for early adopters, but over time the effectiveness would be greatly diminished.

    Let’s say an employer has a $250 deductible, and they move employees to a plan with a $5,000 deductible, but then subsequently “buy down” the deductible back to $250 (essentially giving employees an identical benefit as they had before). In theory the total spend on claims should be identical. What we’ve seen happen over the years though is that by moving from the rich plan to the skinny plan the drop in premium savings far outweighs the claims incurred to give employees the same benefit as before. How can this be?

    My theory is that the rich plans are experiencing adverse selection and therefore have artificially high premiums. The primary driver for this is that many carriers/employers are offering multiple plans to employees and the sickest members are self-selecting on to the richest plans (and conversely, many of the “healthy” people are electing HDHP’s because they know their claims are low).

    The risk pool on the HDHP is much more favorable than it is on the platinum plan. If this adverse selection goes away because EVERYONE gets moved to an HDHP, the risk pools balance out and the savings disappear.

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