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Grandfathered Plans Under Health Care Reform

Categories: Employment, Healthcare, Article

Grandfathered health insurance plans under the ACA

As part of health care reform, on March 23, 2010, President Obama signed the Patient and Protection Affordable Care Act, into law. Employer-provided health care plans that existed as of March 23, 2010 and had at least had one person enrolled in the plan at such time, were exempt or rather grandfathered from many but not all of the provisions of the Act.

This is key, as grandfathered plans do not have to comply with some of the mandates of the health care reform, such as: cost-sharing of preventive health services, nondiscrimination standards of insured health plans, establishing internal and external claims appeals processes and requirements to provide patient protections in relations to emergency services, primary care providers and access to gynecological/obstetric services.

Grandfathered Plans Must Comply with Many Provisions of the ACA

However, grandfathered plans still are required to comply with many other provisions to include but not limited to, tax law changes effecting employer and individuals, coverage for adult children until age 26, and no life time limits on coverage.

When the law was enacted it appeared that grandfather status could be continual. However, the Act did not address what might cause health plans to lose their grandfather status until recently. Interim final rules were issued this month that better explain how employer's health plans could potentially lose their grandfathered status.

Taken from the government fact sheet issued June 14, 2010, below are several ways in which grandfathered health plans may lose their status.

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 co-payments 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 co-payment 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. "

For more information, visit the Health Reform Webpage or the Affordable Care Act Fact Sheet.


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