Grandfathering Health Plans: Take Action Now!

The materials that an employer must communicate to employees during a group health plan's open enrollment will vary depending on whether or not the plan is a grandfathered plan. Therefore, it is critical to decide now (or very soon) about grandfather status.

If you maintain an insured health plan, the starting point for any grandfather analysis is with your insurance carrier. Many insurance carriers serving midsized employers have indicated they are going to issue new policies and, therefore, grandfathering will not be an option.

If you maintain a self-insured plan, or your insurance carrier has indicated it will permit the grandfathering of your health plan, you will need to decide whether you wish to grandfather your health plan before open enrollment materials are sent, since the fact that you are maintaining a grandfathered plan must be set forth in all communications to plan participants.

The basic requirements for grandfathering are: (1) You had a health plan or benefit package in existence on March 23, 2010; (2) you had at least one employee covered as of March 23, 2010, and you have employees continuously covered beyond that date; and (3) you have made either no changes or only the limited permissible changes (as described below) to that plan after March 23, 2010.

The decision to be made is whether the inability to significantly change the plan is worth the benefit of not having to comply with some of the requirements of health care reform. Many large employers that are not contemplating significant changes in plan design are electing grandfather status, recognizing that they may change that status in future years, but in the meantime they gain additional time for health reform compliance.

If you elect grandfather status, you will avoid the following health care reform changes that otherwise become effective in 2011 and 2012:

• First dollar coverage on preventative care;
• No pre-authorization for emergency services or OB/GYN care;
• The ability to designate any provider for primary care;
• The new nondiscrimination rules for insured plans;
• The new internal and external claim procedures; and
• New governmental reporting on quality of care and claim information.

In exchange for avoiding the above-referenced health care reform mandates, you surrender your ability to change your existing health care plan in certain ways. Specifically, you will lose your grandfathered status if you change the plan in one of the seven prohibited manners set forth below:

1. Raise percentage costs under the plan in any manner;
2. Raise fixed costs by more than 15 percentage points above medical inflation (with respect to copayments, it’s the greater of the above amount or $5, increased by medical inflation);
3. Lower employer contributions by more than 5 percent;
4. Add or tighten annual limits on benefits;
5. Significantly reduce or cut a covered benefit;
6. Change insurance companies; or
7. Change insurance policies.

If you elect grandfather status, you must maintain records of your plan as of March 23, 2010, forward. In addition, you must state that the plan is grandfathered in all communications to plan participants.

Please contact us if you have any questions regarding the ability to grandfather your health plans.