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It was President Obama’s mantra during last year’s debate over passage of comprehensive health care reform: “If you like your health plan, you can keep it.”

Since enactment of the Patient Protection and Affordable Care Act in March, the administration has kept up the reassurances. Nothing in the new law, they say, will force individuals or employers that provide insurance benefits to change plans.

And it’s true that group health plans that were in effect when the health care reform law was signed can earn “grandfather” status. What does that mean?

“They only have to comply with some of the expansive group market reforms—not all of them. And that’s important,” says Lisa Horn, manager of health care policy for the Society for Human Resource Management.

But employers can lose grandfather status if they change insurance carriers or “substantially increase” out-of-pocket costs for employees.

Note: Premium changes are not a factor in determining whether or not a plan is grandfathered.

How to keep grandfather status

Generally speaking, plans will lose their grandfather status if they significantly cut benefits or increase out-of-pocket spending for consumers.

If that happens, employees will become eligible to buy insurance through state-based insurance exchanges that promise more plan choices and greater affordability. But those exchanges won’t be fully up and running until 2014.

Plans that lose grandfather status will automatically have to provide:

  • Coverage of recommended prevention services with no cost-sharing
  • Patient protections such as guaranteed access to OB-GYNs and pediatricians.

In order to maintain status as a grandfathered health plan, employers cannot:

1. Change insurance companies. If you decide to buy insurance from a different insurance company, the new insurer’s coverage won’t be grandfathered. (This provision doesn’t apply to self-insured employers that simply switch plan administrators.)

2. Significantly reduce benefits. For example, plans can’t drop coverage for people with diabetes, cystic fibrosis or HIV/AIDS.

3. Raise co-insurance charges. Grandfathered plans cannot increase the percentage of a charge (for example, 20% of a hospital bill) that employees must pay.

4. Significantly raise co-pays. Compared with 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.

5. Significantly raise deductibles. Compared with deductibles required as of March 23, 2010, grandfathered plans can increase deductibles only 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% or 20% between 2010 and 2011, or by 23% to 25% between 2010 and 2012.

6. Significantly lower employer contributions. Grandfathered plans cannot decrease the percentage of premiums the employer pays by more than 5 percentage points (for example, decreasing its own share and increasing workers’ share of the premium from 15% to 25%).

7. Add or tighten an annual limit on what the insurer pays. To remain grandfathered, plans cannot tighten any annual dollar limit in place as of March 23, 2010. Moreover, plans that don’t have an annual dollar limit cannot add a new one unless the change replaces a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit.

Prospects for the future

The Department of Health and Human Services (HHS) predicts that most large employers’ health plans will retain grandfather status.

For small employers, the prospects are very different, mainly because of the prohibition on changing insurance providers. HHS predicts that about 70% of small employers’ plans will retain grandfather status in the coming plan year. However, the department expects that within five years, only about one-third of current plans will still be grandfathered.

Online resource: Grandfathered health insurance plans

For links to a fact sheet on grandfathered plans and a side-by-side table showing which provisions of the law grandfathered plans are exempted from, see the “Guidance” section of our Health Reform Law portal at www.theHRSpecialist.com/healthlaw.

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