“Grandfathered” health plans — plans in existence on the enactment date of the Patient Protection and Affordable Care Act — enjoy exemption from some of the provisions of the health care reform law. However, in order to maintain grandfathered status, a plan must refrain from making certain changes, including those involving plan design, cost-sharing or insurance carriers. Employer plan sponsors are having to decide how having a grandfathered plan balances against the need or desire to modify plan provisions or change carriers in response to rising plan costs and rates, and many are questioning whether the advantages of making changes to their plans outweigh the benefits of avoiding some reform mandates.
In a survey from Hewitt Associates, 90% of the companies said they anticipate losing grandfathered status by 2014, with the majority expecting to do so in the next two years. Most (72%) of those anticipating losing grandfathered status indicated they would do so because of the need or desire to make design changes. The surveyed employers also cited changes to company subsidy levels (39%), health plan consolidation (16%) and insurance carrier changes (16%) as additional reasons why they thought it likely they’d lose grandfathered status. In a separate survey by Mercer, 53% anticipated retaining grandfathered status in 2011, but half of this group expected they would no longer be grandfathered by 2014.
Employers with grandfathered plans are asking these questions, according to Hewitt: “What changes do we need or want to make to our health care plans?” and “How can we make them without significantly increasing costs?” For many employers, it will boil down to deciding how much the freedom to implement plan changes is worth, versus the cost of complying with health care reform’s mandates. For example, in the Mercer survey, employers were asked to estimate what it would cost to meet the law’s requirements for 2011, and the response was, on average, and addition of 2.3% to plan costs. Employers were also asked to predict how much their plan costs would rise if they made no cost-saving changes, and the response was an addition of 10.1%. That’s the kind of increase that many employers will decide they simply cannot bear. These estimates could indicate that, at least at this point, some employers project the cost-effective decision will be to comply with health care reform’s mandates, in order to have the freedom to make plan design and insurer changes that fit into their overall cost-containment strategy.
Among the changes a grandfathered plan cannot make in order to maintain that status are raising coinsurance levels, increasing deductibles or out-of-pocket limits by more than medical inflation plus 15 percentage points, and raising copayment levels by more than the greater of $5 or a percentage equal to medical inflation plus 15 percentage points. For many employers, staying within these limits simply won’t be an option. The Mercer survey reflects this: Even though it would mean loss of grandfathered status, 35% said they would consider raising deductibles/out-of-pocket limits, 31% would consider increasing employee coinsurance levels, and 23% would consider raising copays, beyond what’s allowed under reform.
Employers also need to consider to what extent their plans might already be in compliance with provisions of health care reform. For example, one of the health care reform provisions that does not apply to grandfathered plans is the requirement that preventive care services, including immunizations and screenings, be covered with no cost-sharing for plan participants. Many plans already provide for this, and an increasing number continue to willingly move in this direction as recognition of the importance of preventive care grows.
In the coming months, employers with grandfathered plans will be examining their current plan design and assessing whether it will continue to meet their business needs, together with employees’ health care needs. It remains to be seen how many will decide they’d rather have the flexibility to change their benefit programs, than be restricted to the limited plan modifications allowed under the new law.