Do you offer your eligible employees’ health insurance? Do you have a grandfathered plan? Do you like it and were you able to keep it as the President said you could? Does having a grandfathered plan mean you don’t have to worry about the Affordable Care Act? Was the President’s statement about you being able to keep your insurance plan accurate? How does any of this impact most employers? Are you confused by all these questions and all things ACA-related? If you are at least you have the small comfort of knowing that you are in good company. Those are the questions and topics in this week’s post, after the jump…
What’s a grandfathered plan and how do would you have know if you had one? If your group plan was in place before March 23, 2010 and has not undergone significant changes that essentially increase cost or cut benefits to consumers it is a grandfathered plan. You can even enroll additional employees without losing grandfathered status. If you do not know whether the group plan you have been offering your employees is grandfathered, your insurance carrier can tell you. Now, if you do anything that results in the plan losing its grandfathered status, you can’t get it back again. You must then either get a plan that complies with all ACA requirements or risk having penalties assessed against you. Is that a bad thing? Maybe yes, maybe no. You first need to know what it really means to have a grandfathered plan and decide whether those benefits are significant enough to you to want to keep them.
Let’s clear up one misconception right now: Having a grandfathered health plan does not mean that your business is exempt from all ACA requirements. It will be exempt from some requirements . It will still be subject to most ACA requirements. Here are the ones that a grandfathered plan avoid:
- Coverage of all preventive services (such as contraception) without cost-sharing (co-pays or deductibles);
- Out-of-pocket maximums;
- For small group health plans (generally covering up to 100 employees) essential health benefits, metal levels deductible limits and modified community ratings;
- Guaranteed issue and renewal;
- Nondiscrimination provisions prohibiting discrimination in favor of highly compensated employees (this requirement however, has been delayed indefinitely);
- Expanded claims and appeals requirements;
- Patient protections such as right to choose primary care physicians, right to choose OB/GYN without referrals, coverage of out-of-network emergency department services);
- Reporting to HHS on quality of care (this requirement has been delayed indefinitely).
As you can see the major advantages of having a grandfathered plan are that you don’t have to offer minimum essential coverage (though most employer-sponsored plans already do); there are no out-of-pocket maximums; you don’t have to cover preventive services without cost-sharing or provide plans that allow employees to choose their own primary care physician or OB/GYN without a prior referral. Two of the remaining five requirements that you would avoid are indefinitely delayed, and so you would avoid them anyway–at least for a while. Note that the rest of the ACA (all 900 plus pages of it and its 1500 plus implementing regulations) still applies to you. The fees discussed in last week’s post (Click here for review.), dependent child coverage through age 25, elimination of pre-existing condition limitations, employer shared responsibility provisions (also referred to as “pay or play”, which we will look at next week); and excise taxes starting in 2018 are among the many ACA provisions that will still apply to you.
How do you maintain grandfathered status? You do so by refraining from the following:
- Eliminating or substantially eliminating benefits covering a particular condition. For example, plans covering prescription drugs and counseling for certain mental conditions that stop covering counseling, will likely lose their grandfathered status;
- Increasing co-insurance percentages; For example, plans covering 80% of all costs that drop coverage to 70% will lose its grandfathered status;
- Increasing co-pays by more than $5 or a percentage equal to medical inflation (currently 9.5%) plus 15%; For example plans with office visit co-pays of $30 can increase the co-pay to $37.35 without losing grandfathered status;
- Raising fixed amount cost sharing, other than co-pays by more than medical inflation plus 15%; For example, plans with a $1000 deductible and a $2500 out-of-pocket maximum can increase the deductible to $1200 and the out-of -pocket maximum to $3100 without losing grandfathered status.
- Lowering the employer’s contribution rate by more than 5% for any group of covered persons: For example, plans covering 80% of individual coverage and 60% of family coverage costs that lower family cost coverage to 50% will lost grandfathered status.
- Adding or reducing an annual limit; For example, plans with no limits on MRI’s cannot impose a $10,000 a year maximum on MRI’s without losing grandfathered status.
You must also: a) keep records of your plan design and contribution levels as of March 23, 2010 and any changes since then, and b) include notices in significant communications with employees about your plan, such as summary descriptions of benefits, enrollment materials, etc.
How does grandfathering tie in with the “If you like your plan you can keep it” fiasco? The President made that statement several times–and eventually amended it to “you can keep it if it hasn’t changed since the law passed”. Many– if not all– plans that failed to meet the stringent requirements for grandfathered status were canceled, causing an uproar in the consumer sector. The President’s sweeping statement apparently left out some key pieces of information, leading consumers –and some employer group plan sponsors–to believe that if they had a plan they liked–any plan– they could keep it. Of course that might well have rendered the entire ACA meaningless. As with many other parts of the ACA, however, there is some transitional relief here. The DHHS then announced that non-grandfathered plans that were supposed to be canceled in 2014 could be sold through October 2016 in states approving of such an extension, effectively extending some non-compliant, non-grandfathered plans through at least some part of 2017.
Returning to grandfathered plans: If you have one, that you like, can you keep it indefinitely? In theory yes, as long as you don’t make any of the significant changes listed above. In practice, maybe not. If your plan is very generous, then starting in 2018 it will be subject to excise taxes, also known as “Cadillac” taxes, which can get pretty steep (I reserve the right to talk more about that in a future post.) Finances may ultimately compel you to discontinue that plan. Furthermore, with so much of health care and its costs changing so quickly, circumstances may render it impossible to indefinitely maintain an insurance plan without making significant changes. So, if you offer a grandfathered plan, and if you like it, and if it isn’t a “high-cost health plan” and if you don’t make significant changes to it (as set forth above), well, then you can keep it — for a while, at least.
Join The EmpLAWyerologist next week for a discussion of the ACA penalties and available transitional relief. Bye for now!
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Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent employment counsel on any issues discussed here.
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