Grandfathering…What’s all the hype?

MONDAY, NOVEMBER 15TH, 2010

You have an important decision coming up at your next renewal, and whether you make, or don't make a decision, you've already made one.   Specifically I'm referring to whether or not your health insurance plan maintains its “grandfathered” status.  You may remember policymakers telling you that “if you like your current coverage, you can keep it”.  Not so fast.  The decision to retain or forfeit grandfathered status should be made weighing all the facts.  Grandfathering is an annual decision, however once you lose it you can never get it back.  So you are better off knowing your options ahead of time so you can make an informed decision.

First it is important to know that a “grandfathered” plan is defined as a plan the employer has in place as of March 23, 2010 (the date of enactment of the health care law).  Also regardless of “grandfathered” status for plan years starting after September 23, 2010 plans must include the following:

• No lifetime limits on coverage.
• No annual limits on “essential” benefits.
• Dependent children must be allowed to remain on parent's plan up to age 26 (even if married).
• No pre-existing condition exclusion for individuals under age 19.
• No rescissions of coverage when people get sick and have an unintentional mistake on their application.

So what does grandfathering really get you?

Grandfathered plans will allow employers and employees to keep the coverage they have and avoid compliance with some of the new proposed legislation.  Specifically there are three key areas that will not apply to grandfathered plans:

• Discrimination – Companies will have relief from discrimination rules/section 105(h) that favor highly compensated individuals.  This already applies to self-funded group health plans, but now will also include fully-insured plans (most engineering companies with <200 employees will be fully-insured).  Failure to comply will result in a $100/day/person penalty.

• Preventive Care – Companies will not be required to offer certain preventive care benefits at first-dollar level with no employee cost sharing.

• Mandated Benefits – Companies will have relief from certain mandated benefits relating to choice of providers, emergency services, coverage of clinical trials and internal and external review requirement

What do you lose?

If you want to keep your plan in grandfathered status, you are limited in the changes you can make to your plan.  In order to maintain this status, a plan:

• Cannot significantly Cut or Reduce Benefits – For example, if a plan decides to no longer cover chiropractic care.

• Cannot Raise Co-Insurance Charges – Plans cannot require employees to pay a higher co-insurance level.

• Cannot Significantly Raise Co-Payment Charges – Copays can increase by no more than $5 or a percentage equal to medical inflation (defined as 4%) plus 15% (19% total).

• Cannot Significantly Raise Deductibles – Deductibles can only increase by a percentage equal to medical inflation plus 15% (19% total).

• Cannot Significantly Lower Employer Contributions – Plans cannot decrease the percent of premiums the employer contributes by more than 5%.

• Cannot Add or Tighten an Annual Limit on What the Insurer Pays – Some plans cap the amount that they will pay for covered services each year.  They will not be able to reduce any dollar limits that are currently in place or add any “new” limits.

• Cannot Change Insurance Companies – Changing to a new carrier (even with identical benefits) will not be considered a grandfathered plan.  This does not apply to self insured groups who utilize a third party administrator (TPA) to pay claims or to collective bargaining agreement.  This was reversed as of November 15, 2010

So does it really make sense to keep your plan grandfathered?  While the government expects that a majority of employers will want to grandfather their plans, our work with engineering companies suggests quite the opposite.  In fact most believe they will not.  Most companies would rather have the flexibility to change their benefit programs than be tied down to the limited modifications allowed under the law.

Engineering companies are focused now more than ever on controlling expenses and maximizing their bottom line.  With benefits being one of the top two business expenses, the new health care reform law is causing them to review their existing benefit programs to focus on two important questions:  What changes do I need to make to my health care plans?  And how can I make them without significantly increasing costs?