Reminder Alert: California Supplemental Restrictions
Some employers offer so-called “skinny minimum essential coverage (MEC) plans” that only cover preventive care and do not meet the minimum value plan standard under the Affordable Care Act (“ACA”). To help supplement these plans, some employers will offer fixed indemnity policies or disease-specific (think, cancer-only) policies. However, a 2015 California law prohibits the supplementation of plans that do not provide minimum value in the large group market. As a reminder, “minimum value” means the plan has a 60% actuarial value. Put another way, the plan, on average, should cover 60% of a participant’s medical costs that are permitted under the plan.
Under California law, a fixed indemnity or disease-specific policy can only be offered in either the small and large group market if the carrier has certified to the California Insurance Commissioner that it will only market such policies as supplemental plans. The carrier also must require that anyone insured under the supplemental policies be covered by major medical coverage that has an actuarial value equal to or greater than 60% (i.e., provides minimum value). Otherwise, under the statute, the supplemental coverage would be in violation of California law.
Takeaway
This prohibition is placed on the carrier, and not directly on the employer. Even so, employers (particularly multi-state employers with employees in California) should bear this in mind. If a large employer is offering a plan that does not provide minimum value to California employees, then it should not offer these supplemental policies (or work to stop offering them, if they are) to those employees.
Alternatively, the employer could consider offering a minimum value plan to those employees, although that comes with additional compliance obligations and additional cost. An employer who is proactive about this can better manage the employee relations issues that could arise down the road if the situation is not addressed.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.