Health Care Reform: Changes to “grandfathered plans” could cost businesses.

“I know that there are millions of Americans who are happy, who are content with their health care coverage — they like their plan, they value their relationship with their doctor. And no matter how we reform health care, I intend to keep this promise: If you like your doctor, you’ll be able to keep your doctor; if you like your health care plan, you’ll be able to keep your health care plan.

“So don’t let people scare you. If you like what you’ve got, we’re not going to make you change.”

— President Barack Obama, speaking in Green Bay on June 11, 2009

President Obama repeated that promise on many occasions as he tried to build the case for health care reform, but he left out a few regulations that recently were issued by government bureaucrats charged with writing the rules. Obeying those rules will determine whether businesses maintain Grandfathered Plan or “GP status,” a reference to health insurance plans in existence before the enactment of the Patient Protection and Affordable Care Act on March 23, 2010 — plans that will be “grandfathered” into the law if businesses adhere to the government’s regulations.

If an employer can maintain this status, he or she might be able to avoid some of the costs and required design changes associated with new mandates established under the new health care law.

Since a number of plan changes would cause a loss of “GP status,” critics of the law believe an unreasonable series of gauntlets have been established that will cause employers to lose this status.

Others believe the conditions are reasonable and represent long overdue consumer protections.

Changes in the wind

With regard to maintaining Grandfathered Plan or GP status, the new health care law comes with its share of paperwork, records requirements, and anti-abuse provisions, but it’s the plan changes that are causing some controversy. According to Cynthia Van Bogaert, a partner in the Employee Benefits and Executive Compensation practice at the Boardman Law Firm, these are among the changes that would trigger a loss of GP status:

  • The elimination of some benefits (example: Cystic Fibrosis coverage) and some changes in overall limits.
  • New insurance. Any change of insurance carrier would negate GP status. In one of the anti-abuse provisions, if employers who previously were covered by one GP are transferred to another, or if the GP plan is amended to look like another, and there is no “bonafide, employment-based reason” to transfer employees, that would trigger a loss of status.
  • Increases in co-insurance. Any increase to the percentage of cost-sharing requirements in cases where insurance companies and the insured share the risk. (Example: If the insured’s share of coinsurance be raised from 20% to 25% or 30%).

  • Increase in fixed-amount cost-sharing (other than copayments) that is greater than the maximum percentage increase. A maximum percentage increase is defined as medical inflation from March 23, 2010, plus 15%. For example, if a plan changes a $500 deductible by the rate of medical inflation, which is defined in the recently issued regulations, plus 15%, that would impact GP status.

At the moment, there are six general categories of changes that would eliminate GP status. There are still open questions, such as whether changes to prescription drug formularies or a change from an insured plan to a self-insured plan would affect GP status. But the rules announced so far have created some heartburn in the business community, most notably among health insurers who might lose business as a result of the GP mandates, and later attempt to recapture it by offering coverage on the state-run health exchanges established under the new law.

Robert Palmer, president and CEO of Dean Health Plan, believes the gauntlet of tests restrict changes in health plans that are necessary over time. “If some of the details of coverage are not altered by the health plans, then their financial exposure to risk is simply going to be too great for the premiums they are collecting,” he said.

Melody Hope, senior benefit consultant for Hausmann-Johnson Insurance, said the biggest surprise to people in the insurance industry was the rule that changing carriers would cost employers their GP status. One of the ways to keep costs down, she noted, is to shop in the marketplace.

“If you lose your GP status by changing to another insurance carrier, it pretty much binds you to the same carrier and limits what you’re able to do in terms of employer contribution as well as the plan design changes,” she stated. “You can only make very incremental changes and retain your grandfathered status.”

James Riordan, president/CEO of WPS Health Insurance, said the complexity of the new health care law will create difficult problems for private industry. He and Palmer agree that the law did not address what they call the most important issue of all, rising health care costs. Riordan said the cost problem will be exacerbated as more expensive prescription drug treatments replace what is on the market today. As a result of this and other cost pressures, he believes changes in the new law will be necessary over time.

“I might have misplaced faith here, but I think saner minds will ultimately prevail, and they will have to address how we deal with changing risk,” he said.

On the contrary

Van Bogaert (Boardman Law Firm), who last week presented an Employee Benefits Update on the new health care law, believes the GP rules meet the test of reason. Noting the law triggers a loss of GP status for the elimination of benefits to diagnose or treat certain conditions, she said government regulators attempted to strike a balance between the promises of politicians and the need for consumer protections.

“They didn’t want to deny people the ability to have these protections,” Van Bogaert noted. “It does seem to me that those six things they identified on the watch list are things that make sense with respect to the issues that they are balancing — coverage versus the promise to keep your old benefit.”

In any event, she advised employers that are negotiating changes to health plans or employment arrangements to review contemplated changes very carefully. “Employers will have to look at this in the big picture,” Van Bogaert said. “Employers are going to see that they are going to be forced to have a plan and consider what it looks like, or not have a plan and pay the penalties.”

By 2014, employers with 50 or more full-time equivalent workers would face penalties if one or more of their full-time employees obtain an insurance premium credit for coverage through a state-run exchange, according to a legislative brief published by Hausmann-Johnson. Employers also would face penalties if they offer coverage that is deemed to be “not affordable” or does not, in the government’s view, provide minimum value.

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