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What you need to know about ‘grandfathering’ your health plan
e-Reports, Jan. 10, 2011
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Health Care Reform Update - From a business owner’s perspective Untitled document

B. Michael Haffey, CLU - ISMA Insurance Agency General Agent
Much of the nuts and bolts of health care reform was not included in the Affordable Care Act. In fact, the phrase “the Secretary shall…” appears over 1,000 times in the law, often followed by a directive requiring the Secretary of Health and Human Services to develop specific regulations and guidance to implement the new law.

As guidelines and regulations are released, ISMA’s insurance agency will identify the most pertinent information, summarize it and provide you helpful, practical advice.

Grandfathering health plans
When the health care reform bill was in debate, 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. A grandfathered plan is defined as one that was in existence on March 23, 2010, or the date the health care reform bill was passed.

The idea is to exempt plans from complying with certain provisions of the new law and allow 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 the new rules.

To grandfather or not?
Here are the real questions.

1. What types of changes will cause a loss of grandfathered status?

To maintain grandfathered status, a health plan cannot:

  • Reduce or eliminate benefits to diagnose or treat a particular condition (i.e. diabetes)
  • Increase co-insurance rates (i.e. raise co-insurance requirements from 20 to 25 percent)
  • Increase a deductible or out-of-pocket maximum more than medical inflation (published by the Department of Labor) plus 15 percent
  • Increase a co-payment by more than medical inflation plus 15 percent (or, if greater, $5 plus medical inflation)
  • Decrease the employer’s contribution rate towards the cost of coverage by more than 5 percent
  • Implement or reduce an annual limit on the dollar value of all benefits (unless 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 *

2. Does it make sense to stay grandfathered?

 2010/2011 New Coverage Mandates**
New Coverage Mandates

The short answer offered by most benefits professionals is 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 bulleted above to keep the cost of your plan reasonable – thus becoming a non-grandfathered plan.

The chart presented here lists new coverage mandates effective for plan years beginning on or after Sept. 23, 2010. Half 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 control of their health care costs by implementing the strategies in the bullets above.

The bottom line
To control health care costs, most employers will need to shop their insurance and change carriers, increase deductibles and co-insurances, and/or ask the employees to pay a little more of the cost of the health plan. Of course, each of these actions will put you in a non-grandfathered status, making you comply with all provisions of the new law as we know it today.

*Note: The Departments of Health and Human Services, Labor, and the Treasury are considering the impact of 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. Further regulatory guidance will specify if these changes will affect the grandfathered status of a plan.

** 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.

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