Posted: 12.20.2010
The phrase “the Secretary shall…” appears over 1,000 times in the healthcare reform act, often followed by a directive that requires the Secretary of Health and Human Services to develop specific regulations and guidance in order to implement the new law. This means that much of the nuts and bolts of healthcare reform was not included in the act. As the additional guidance and regulations are released, there is a lot to digest as it relates to this new law and what it means to you.
What is grandfathering?
When the healthcare reform bill was being debated, President Obama promised, “If you like your health care plan, you can keep your health care plan.” That’s what “grandfathering” is all about – keeping your current health plan. The idea behind grandfathering is exempting plans from having to comply with certain provisions of the new law and allowing them to remain generally the same as they were prior to the enactment of the reform law. Grandfathering allows plans to avoid immediate application of some of the new rules; however, the exception does not apply to all of the new rules.
To grandfather or not to grandfather your current health plan?
The real questions are:
1. What types of changes will cause you to lose your grandfathered status?
A grandfathered plan is defined as one that was in existence on March 23, 2010, or the date the healthcare reform bill was passed. In order to maintain grandfathered status, a health plan cannot do any of the following:
- Reduce or eliminate benefits to diagnose or treat a particular condition (i.e. diabetes).
- Increase coinsurance rates (i.e. raising an individual’s coinsurance requirement from 20% to 25%).
- Increase a deductible or out-of-pocket maximum by more than medical inflation (published by the DOL) plus 15%.
- Increase a copayment by more than medical inflation plus 15% (or, if greater, $5 plus medical inflation).
- Decrease the employer’s contribution rate towards the cost of coverage by more than 5%.
- Implement or reduce an annual limit on the dollar value of all benefits (unless you are replacing a lifetime dollar limit with an annual dollar limit at least as high as the lifetime limit).
- Force employees to move to a grandfathered plan with lesser benefits.
Please note: Under the initial regulations, one of the ways a plan could lose its grandfathered status was if the employer switched from one insurance company to another, even if the benefits stayed the same. An amendment to the regulations was issued that now allows group health plans to switch insurance companies without losing their grandfathered status, assuming the structure of the coverage doesn’t violate one of the other rules for maintaining grandfathered plan status. In addition, the impact of other changes such as changes in plan structure (i.e. switching from fully insured to self-funded), changes in a provider network, and changes in a prescription drug formulary is being considered. Further regulatory guidance will specify if these changes will affect the grandfathered status of a plan.
2. Does it really make sense to stay grandfathered?
The short answer that most benefits professionals are giving is the following:
Unless you have a discriminatory plan either in contributions or benefit levels and want to keep this discriminatory plan, you will most likely find it necessary to do one of the things listed in the chart to the right to keep the cost of your plan reasonable – thus becoming a non-grandfathered plan. In this same chart are the new coverage mandates effective for plan years beginning on or after September 23, 2010. As you will see, half of these mandates are applicable to grandfathered plans. The others are questionable as to whether their value is significant enough to make a group consider forgoing controlling their health care costs by implementing the strategies in the bullets above.
Summary
In order to control their health care costs, most employers will need to increase deductibles and co-insurances and/or ask the employees to pay a little bit more of the cost of the health plan. Of course, now you know that each of these actions will put you in a non-grandfathered status, thus making you comply with all of the provisions of the new law as we know it today.
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2010/2011 New Coverage Mandate |
Applicable to Grandfathered Plans? |
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No pre-existing conditions for children under the age of 19 |
Yes |
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No lifetime or annual dollar limits on essential health benefits |
Yes |
|
Adult child coverage up to age 26 |
Yes* |
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No rescissions (except for fraud or misrepresentation) |
Yes |
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First dollar preventive health care coverage |
No |
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Internal and external appeals |
No |
|
Mandated patient protections |
No |
|
Non-discrimination rules extended to insured plans |
No |
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* Until 2014, grandfathered plans are not required to offer coverage if the dependent is eligible for another employer-sponsored health plan other than that of a parent. |
Nicole Taulton and B. Micheal Haffey, CLU
Brown & Brown of Indiana
