Grandfathered Health Plans
Clarifying Grandfathered Plan Status for Large Groups
One aspect of the Affordable Care Act (ACA) that has generated some misconceptions is the concept of grandfathered plans.
When the ACA first passed in 2010, PacificSource, like most health insurers, made the decision to transition all individual and small group plans to ACA-compliant plans and not to retain “grandfathered plans.” Our rationale was that grandfathered plans would not be sustainable given that even small changes to the plans would cause them to lose their grandfathered status.
Our large group clients, however (generally those with 51 or more employees) did have the option to be grandfathered.
A group plan is “grandfathered” if it existed on or before March 23, 2010 (the day the law was passed) and can bypass some reform mandates. If your plan is currently grandfathered, it can maintain its grandfathered status. Your plan will lose grandfathered status if significant changes are made that reduce plan benefits or increase plan costs for members. Once a plan loses its grandfathered status, it cannot get it back.
Changes Affecting Grandfathered Status
Changes that would cause your plan to lose grandfathered status are:
- Significantly cutting benefits to diagnose or treat a specific condition
- Increasing coinsurance above the level it was at on March 23, 2010
- Increasing copays by more than the greater of medical inflation plus 15 percentage points or medical inflation plus $5
- Increasing deductible, out-of-pocket, or other fixed amount cost sharing (other than copays) by more than medical inflation plus 15 percentage points
- Decreasing premium contributions by more than 5 percentage points below the contribution rate on March 23, 2010
- Reducing annual limits or adding annual limits when none existed on March 23, 2010
Changes that generally will NOT cause your plan to lose grandfathered status are:
- Increasing premiums
- Complying with federal or state regulations
- Voluntarily complying with provisions of the ACA (for example, no cost-sharing on in-network preventive care)
- Changing third party administrator services, such as flexible spending plan services
- Changing provider networks
- Changing the prescription drug formulary (drug list) used by the plan
ACA Provisions Affecting Grandfathered Groups in 2014
Certain provisions of ACA will apply as your plan renews in 2014, regardless of its grandfathered status:
- Pre-existing condition waiting periods will be eliminated.
- The maximum probationary waiting period will be 90 calendar days.
- Overall lifetime or annual limits for essential health benefits (EHB) will be eliminated.
- Dependents under age 26 will be eligible for coverage, even if they are eligible for other coverage through their own employer or a spouse’s employer.
- Minimum value
- Under the “pay or play provision,” if you have 50 or more full-time-equivalent employees, you must offer health benefits to workers averaging at least 30 hours per week and their dependent children. If coverage is not offered, you must pay an annual penalty. (This penalty will be delayed until 2015.)
- No arbitrary cancellations of health coverage will be allowed.
- Summaries of Benefits and Coverage (SBC) must be provided to covered employees.
Other provisions of ACA will not apply to grandfathered plans, but you may voluntarily add them:
- A combined medical and pharmacy out-of-pocket (OOP) maximum of $6,350
- Prescriptions (an EHB) subject to the medical OOP
- Deductible, copay, and coinsurance subject to medical OOP
- No dollar limit on EHBs
- Preventive care covered in full when members see an in-network provider
- Changes to the way age is used in premium calculation
- Elimination of gender in premium calculation
- Nondiscrimination of employees in favor of highly compensated, if fully-insured (penalty delayed until 2015)
- Nondiscrimination of healthcare providers (acting within the scope of provider’s license or certification under State law)
While bypassing some reform mandates may sound
like an attractive option, upon closer scrutiny we believe that grandfathered
plans are not advantageous to employers or members. When deciding whether or not to let go of grandfathered status in 2014, there are some important points to consider about this change:
- Once you give up grandfathered status, you can’t get it back.
- Costs could increase if your plan is no longer grandfathered.
- The combined medical and pharmacy out-of-pocket (OOP) maximum will be limited to $6,350. Because groups who currently have their medical and pharmacy plans with separate carriers could potentially exceed the combined medical and pharmacy out-of-pocket (OOP) maximum, they will have until 2015 to combine this limit.
- Deductible and copays will apply to the medical OOP.