On June 17, 2010, the federal government published the final interim regulations on the “grandfathering” of healthcare plans that existed when the health care reform legislation became law on March 23, 2010. These rules will help employers and plan sponsors determine if their health care plans comply with the health care reform law. Under the new rules, employers can make routine and modest adjustments to co-payments, deductibles and employer contributions to their employees’ premiums without forfeiting grandfather 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 protection under the new law; and,
· making changes to comply with state and federal law.
Plans will lose their “grandfather” status if they choose to significantly cut benefits or increase out-of-pocket spending for their plan participants — and plan participants in health care plans that make such changes will gain new consumer protections such as:
· coverage of recommended prevention services with no cost sharing;
· patient protections such as guaranteed access to OB-GYNs and pediatricians.
Changes that will cause plans that were in effect on March 23, 2010 to lose their “grandfathered” status are:
· Significantly Cutting or Reducing Benefits: For instance, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
· Raising Co-Payment Charges: Generally, plans require patients to pay a fixed-dollar amount for doctor’s office visits and other services. Compared with the co-payments in effect on March 23, 2010, grandfathered plans can 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 co-payment from $30 to $50 over the next 2 years, it will lose its grandfathered status.
· Significantly Raising 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 increased 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.
· Significantly Lowering Employer Contributions: Many employers pay a portion of their employees’ premium for insurance and the remainder 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 employees’ share of premium from 15% to 25%).
· Adding or Tightening an Annual Limit on What the Insurer Pays: Some insures cap the amount that they 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).
· Changing Insurance Companies: If an employer decides to buy insurance for its employees from a different insurance company, this new insurer will not be considered a grandfathered plan. This does not apply when employers provide their own insurance to their employees switch plan administrators or to collective bargaining agreements.
To protect against any potential abuse of grandfathered health plan status, the regulations require a grandfathered 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 enables 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.
Additionally, a grandfathered plan’s status will be revoked 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 protection. Grandfathered plan status will also be revoked if it forces consumers to switch to another plan simply to avoid complying with the law.
Realizing that group health plans may have made some changes after March 23, 2010, the preamble to the interim final rules state that changes made in good faith compliance with the health care reform grandfathering requirements prior to the date of the interim final rules release may be disregarded by regulators for enforcement purposes if the changes only modestly exceed the permitted changes described above.
Employers should review their benefit plan offers to determine whether the benefits of maintaining grandfathered health plan coverage outweigh the restrictions on plan design and cost-sharing changes imposed by the interim final rules. Employers who decide to retain the grandfathered status of their group health plan should carefully document the plan or policy terms in effect on the grandfather date and include the model grandfather statement in plan materials distributed to participants and beneficiaries.