Health Care Reform Federal Rules Taking Shape
submitted by Michael Meulemans

The federal Department of Health and Human Services is speedily putting together reams of regulations implementing the new federal health care reform, "Affordable Care Act" signed in March by President Obama.

Whether you agree with the legislation or not, understanding these rules is going to be vital for business interests nationwide and the tax credits and penalties affect businesses differently based on the number of employees they have and their salaries.

According to a New York Times article from the June 14th edition, "In issuing the rules, the administration acknowledged that some people, especially those who work at smaller businesses, might face significant changes in the terms of their coverage, and it said they should be able to ‘reap the benefits of additional consumer protections.’"

So what does that mean?

The NY Times article states, "The law provides a partial exemption for certain health plans in existence on March 23, when Mr. Obama signed the legislation. Under this provision, known as a grandfather clause, plans can lose the exemption if they make significant changes" in deductibles, co-payments or otherwise reduce employee benefits.

By the way, another report suggests that in 2011 employers will see a large health insurance premium increase. Click here for more details. This article projects that medical costs will increase by 9% in 2010. While that doesn’t mean that insurance premiums will increase on average by that amount, the increase will likely be in that neighborhood for the average employer depending on several factors including the employee’s medical histories, employer size, employee age factors, and others.

Decision time: Therefore, will employers maintain their benefit structure to assure their "grandfather status," or will they reduce employee benefits to avoid a potentially large premium increase. Its also possible many employers will still decide to increase copays and deductibles to minimize a large increase… say a 10% premium increase with a $500 annual deductible, instead of a 20% increase with a stable $300 annual deductible.

Explaining the Exemption

Under the rules, a health insurance plan can lose its exemption if it eliminates all benefits for a particular condition (i.e. mental health) or if it increases deductibles or co-payments by more than the rate of medical inflation plus 15 percentage points.

Likewise, a health plan loses its exemption if an employer reduces its contribution so that its share of the total cost of coverage declines by more than 5 percentage points. If, for example, an employer is paying 60 percent of the cost of family coverage, it would run afoul of the rules if it cut its share to 50 percent.

But "grandfathered health plans" are exempt from other requirements. In general, they do not have to provide "essential health benefits" specified by the federal government and they do not have to provide free (no copay or deductible) preventive care.

An employer would also lose its exempt status if it increased co-payments for doctor’s visits to $45, from $30 — a 50 percent increase — while medical inflation was 8 percent.

Why would an employer seek "Grandfather Status?"

By achieving "grandfather status" in 2010 Congress allows those plans to have greater time to transition to the new law and its benefit mandates.

Conclusion: So what will employers do in Southern Wisconsin on this issue? It will be a case by case decision for the most part, largely depending on their premium renewal increases for 2011. If an employer is faced with upwards of a 20% renewal increase and cannot and obtains similar quotes from other insurers, then what? Chances are they will forego the grandfather status.

Michael Meulemans through his consulting firm, Write Resources, LLC, currently is an author/ editor of health insurance textbooks and study manuals for the Continuing Education Insurance Program of America’s Health Insurance Plans.

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