Keep the Old Grandfather(ed) Around or Not ???

The Affordable Care Act (ACA) gives American families and businesses more control over their health care by providing greater benefits and protections for family members and employees.  It also provides the stability, and also the flexibility, that families and businesses need to make the choices that work best for them.

Over the next several years, employers will determine whether to maintain grandfathered status and keep cost-sharing and benefit design considerations within the rules necessary to do so, or to lose their grandfathered status and have greater flexibility to adjust to premium growth.

Each employer must make a decision based on their specific facts and circumstances. Due to improved benefit offerings it is estimated non grandfathered plans will cost 2% – 5% more than grandfathered plans. However, employers can more than recoup these cost disadvantages with a well timed or opportunistic carrier change, plan design modification and employee cost sharing strategies.

Small employers who face more significant rate increases are more likely to give up their grandfathered status than large employers. The Federal agencies estimate that approximately 66 percent of small employers (those with fewer than 100 employees) and 45 percent of large employers (those with 100 or more employees) will lose their grandfathered status by 2013.

The estimated migration away from grandfathered status among health plans will be a positive development for consumers. As more plans lose their grandfathered status, more consumers will benefit from the provisions of the ACA that do not apply to grandfathered plans. Restricting the ability to maintain grandfathered status over time also means that insurance carriers will be less able to keep grandfathered status for plans that are comprised mainly of healthy people and end grandfathered status for plans with sicker and older people. This will help to ensure all Americans ultimately benefit from the new insurance protections.

Employer plans will lose their grandfathered status if they choose to significantly cut benefits or increase out-of-pocket spending for members – and members in plans that make such changes will gain new protections.

Protecting Patients’ Rights in All Plans

All health plans – whether or not they are grandfathered plans – must provide certain benefits to their members for plan years starting on or after September 23, 2010 including:

• No lifetime limits on coverage
• No rescissions of coverage when people get sick and have previously made an unintentional mistake on their application
• Extension of parents’ coverage to young adults under 26 years old

For the vast majority of Americans who get their health insurance through employers, additional benefits will be offered, irrespective of whether their plan is grandfathered, including:

• No coverage exclusions for children with pre-existing conditions
• No “restricted” annual limits (e.g., annual dollar-amount limits on coverage below standards to be set in future regulations).

Grandfathered health plans will be able to make routine changes to their policies and maintain their status.  These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with State or other Federal laws.  Premium changes are not taken into account when determining whether or not a plan is grandfathered.

Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to consumers.  If a plan loses its grandfathered status, then consumers in these plans will gain additional new benefits including:

• Coverage of recommended prevention services with no cost sharing
• Patient protections such as guaranteed access to OB-GYNs and pediatricians.

Under the ACA, these requirements are applicable to all new plans, and existing plans that choose to make the following changes that would cause them to lose their grandfathered status.

Compared to polices in effect on March 23, 2010, grandfathered plans:

• Cannot Significantly Cut or Reduce Benefits.  For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
• Cannot Raise Co-Insurance Charges.  Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill).  Grandfathered plans cannot increase this percentage.
• Cannot Significantly Raise Co-Payment Charges.  Frequently, plans require patients to pay a fixed-dollar amount for doctor’s office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points.  For example, if a plan raises its copayment from $30 to $50 over the next 2 years, it will lose its grandfathered status.
• Cannot Significantly Raise Deductibles.  Many plans require patients to pay the first bills they receive each year (for example, the first $500, $1,000, or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.  In recent years, medical costs have risen an average of 4-to-5% so this formula would allow deductibles to go up, for example, by 19-20% between 2010 and 2011, or by 23-25% between 2010 and 2012.  For a family with a $1,000 annual deductible, this would mean if they had a hike of $190 or $200 from 2010 to 2011, their plan could then increase the deductible again by another $50 the following year.
• Cannot Significantly Lower Employer Contributions.  Many employers pay a portion of their employees’ premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).
• Cannot Add or Tighten an Annual Limit on What the Insurer Pays.  Some insurers cap the amount that they will pay for covered services each year.  If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010.  Moreover, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high-cost enrollees).
• Cannot Change Insurance Companies.  If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan.  This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.

Protecting Against Abuse of Grandfathered Health Plan Status

To prevent health plans from using the grandfather rule to avoid providing important consumer protections, the regulation provides for:

• Promoting transparency by requiring a plan to disclose to consumers every time it distributes materials whether the plan believes that it is a grandfathered plan and therefore is not subject to some of the additional consumer protections of the Affordable Care Act.  This allows consumers to understand the benefits of staying in a grandfathered plan or switching to a new plan.  The plan must also provide contact information for enrollees to have their questions and complaints addressed;
• Revoking a plan’s grandfathered status if it forces consumers to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing as a means of avoiding new consumer protections; or
• Revoking a plan’s grandfathered status if it is bought by or merges with another plan simply to avoid complying with the law.

Projected Impact on Employers

Large Employer Plans

The 133 million Americans with employer-sponsored health insurance through large employers (100 or more workers) —who make up the vast majority of those with private health insurance today—will not see major changes to their coverage as a result of this regulation.  This regulation affirms that most of these plans will remain grandfathered – more than three-quarters of firms in 2011 – based on the way they changed cost sharing from 2008-2009.  Most of these plans already offer the patient protections applied to grandfathered plans such as no pre-existing condition exclusions for children and no rescissions of coverage when a person gets sick.  In addition, they are likely to already give their workers and families protections like a choice of OB-GYN and pediatrician and access to emergency rooms in other states without prior authorization.  Based on past patterns of behavior, it is expected that large employers will continue to make adjustments to the health plans they offer from year to year so that, by the time the health insurance the health insurance Exchanges are established in 2014, fewer – but still most – large employer plans will have grandfather status.

Small Business Plans

The roughly 43 million people insured through small businesses will likely transition from their current plan to one with the new protections over the next few years.  Small plans tend to make substantial changes to cost sharing, employer contributions, and health insurance issuers more frequently than large plans.  As such, we estimate that 70% of plans will be grandfathered in the first year, but depending on the choices these employers make, this could drop to about one-third over several years.  To help sustain small business coverage, the Affordable Care Act also includes a tax credit for up to 35% of their premium contributions.

About The Author

Peter Kuhn is the Founder and a Principal at IBP Insurance Services in San Jose, CA

Email: peter@ibpis.com

Upon graduation from Santa Clara University in 1983, Peter entered the workforce and was recruited by Price Waterhouse (currently PWC) and spent three years in the audit practice at PWC. Peter earned his CPA certificate in 1985. Prior to establishing IBP in 1987, Peter gained his insurance and employee benefit training at CIGNA. IBP has become one of the largest independent employee benefit brokerage and consulting firms in the State of California. IBP has earned a reputation as a leading producer with an aggressive representation of client needs. As an industry leader, Peter is called upon as a point of reference on key employee benefit issues at a state and national level. Furthermore, Peter has served on the broker advisory council for: Aetna, Blue Cross, HealthNet, Kaiser, Lifeguard and PacifiCare

Peter is also active in the employee benefit and insurance arenas and is an active member in the following organizations:

- California Association of Health Insurance Underwriters (CAHU)

- National Association of Health Underwriters (NAHU)

- National Association of Insurance and Financial Professionals (NAIFA)

- Silicon Valley Association of Health Underwriters (SVAHU)

Additionally, Peter is regularly quoted in local and national benefit publications and has been a featured presenter at the Barclays’ Quarterly Health Care Updates.

Peter organized the largest gathering of employers in Silicon Valley history to discuss the sensitive issue of provider disruption. The conference was attended by over 375 employers (representing over 100,000 employees) and industry leaders who were looking for answers to resolve the question . . . My Doctor has Left the Network Now What???

The recently enacted Affordable Care Act as one of the most significant pieces of legislation to impact employers in the last 30 years. It is important to understand the opportunities and pit falls presented by this landmark legislation.

Peter is a frequent speaker at tradeshows and industry conventions on employee benefit programs and healthcare legislation.