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Are grandfathered health plans dead?

By September 17, 2010 Health

If we heard it once, we heard it a million times: “If you like your health plan, you can keep it.”
Throughout the 2008 presidential campaign and during the subsequent debate about the health reform bill, President Obama repeatedly said that the new change to the health care system wouldn’t affect people’s current policies; instead, they could keep their plan and keep their doctors.
The Patient Protection and Affordable Care Act, as we all know, was signed into law on March 23. And, as promised, the new legislation contains a grandfathering provision, which ensures that Americans can keep their policy. [See related: Agencies set rules on grandfathered health plans] So the administration remained true to its word, but after reading the guidelines released by the Department of Health and Human Services in mid-June, a lot of people are crying foul.
You see, when Obama signed the bill, we knew what the law said, but as with much of the mammoth health care bill, the details still needed to be worked out. So, while Kathleen Sebelius and her team at DHHS were busy figuring out what changes would be allowed, the rest of us could only speculate.
And that wasn’t easy for employers with April, May, or June renewal dates, who had to make decisions about their coverage without yet knowing the rules. As a result, many groups already lost their grandfathered status.
At long last, on June 14, the wait was finally over. In a press release, DHHS let the public know what changes a “grandfathered” plan would be allowed to make. I don’t believe I was the only one surprised by what I read.
PPACA makes a number of plan changes in both the group and individual markets. In order to stay grandfathered and avoid some of the new changes, a health plan that was in effect on March 23 CANNOT:

  • Significantly cut or reduce benefits
  • Raise coinsurance charges (at all)
  • Significantly raise copayment charges (by significant they mean more than $5)
  • Significantly raise deductibles (anything more than about 20 percent)
  • Significantly lower employer contributions (more than 5 percent)
  • Add or tighten an annual limit on what the insurer pays
  • change insurance companies (even if you’re going with an identical plan)

Given that most carriers don’t allow you to raise your copayments by $5 at a time or increase your deductible in $100 increments, it looks like grandfathered plans are pretty much stuck with what they’ve got. And since most companies don’t just renew as is year after year, it does make you wonder – is grandfather dead?
By the government’s own projections, the answer to this question is probably yes. According to the DHHS fact sheet about keeping the plan you have, between 36 percent and 66 percent of large employers will still be grandfathered in 2013, a year before many of required plan changes – including the essential benefits package – go into effect. Between 20 percent and 51 percent of small businesses will still have grandfathered status as of 2013.
While many employers struggle to decide whether it makes sense to eat the renewal increases and hang on to their plan, it’s also worth mentioning that many of the changes, such as the elimination of annual and lifetime limits, prohibition on rescissions, extension of parents’ coverage to children up to age 26, and a 90 day limit on new hire waiting periods, are required whether or not a plan is grandfathered – that’s the “patient protection” part of the bill. The government thought these changes were so important that they’re making everyone do them.
So what, as an agent, should you advise your clients? That’s up to you, but my guess is that the extra amount most companies would pay to maintain their grandfathered status year after year will be more than they would pay by going with one of the new plans. The new benefits that go into effect after Sept. 23 will be factored into the carriers’ pricing, so my advice is to compare all of the options just like you’ve always done and recommend accordingly.
Two final notes: 1) Employers who made a plan change between March 23 and June 14 can return to their previous plan and remain grandfathered. 2) The credit for the title of this month’s column belongs to my company’s president, Craig Keohan. He asked the question during a recent sales meeting and I thought it was hilarious.