How to keep your current health plan in light of the new health care reform law Featured

8:00pm EDT October 26, 2010

When President Barack Obama told employers that if they liked their current health care plan, they would be able to keep it even after reforms had passed, he introduced the idea of “grandfathered” status for health plans.

“The health care reform provisions have to be followed if you do not keep your grandfathered status,” says Marti Lolli, director of health care reform for Priority Health. “There are certain provisions that a grandfathered plan does not have to comply with, provisions that have costs associated with them.”

Smart Business spoke with Lolli about how to ensure your health plan remains grandfathered under its current terms.

Why might an employer want to work to remain grandfathered under its current plan?

Under the health care reform law, one of the new provisions is that you have to cover preventive care at 100 percent. However, a grandfathered plan does not have to comply with that provision.

The second big provision that grandfathered plans do not have to comply with is nondiscrimination based on salary. It’s common for employers to offer better benefits packages to their more highly compensated individuals. However, under health care reform, if your plan doesn’t remain grandfathered, you can’t do that anymore.

What requirements must a plan meet to be grandfathered?

The plan must have been in place by March 23, 2010, and at least one person had to have been enrolled in it. President Obama said, ‘If you like the plan you have, you can keep it.’ Well, if the plan didn’t exist, there’s nothing to keep. If you meet that initial criteria, then you are automatically grandfathered and the question becomes what changes made to the plan will cause the plan to lose that status.

How can a plan lose its grandfathered status?

This status can continue indefinitely, as long as the plan does not commit one of the ‘seven deadly sins’ that cause a plan to lose its grandfathered status.

Basically, anything that increases the employee or participant cost share, both for the premium and for the services of the plan, may cause the plan to lose grandfathered status. Historically, employers have used various levers such as co-payments, deductibles, plan funding and innovative plan designs to help manage costs. Pulling these levers in the future will, in most cases, cost a plan its grandfathered status.

What are the seven ways to lose grandfathered status?

The first way to lose status is to eliminate all benefits related to a specific condition, such as diabetes. Second, you can’t increase co-insurance. So if the plan covers services at a percentage level — such as the plan pays 90 percent and the participant pays 10 percent — you can’t increase that. If you increase that coinsurance level by as little as 1 percent, the plan loses its grandfathered status and all the benefits of that status.

Third, increasing the out-of-pocket maximum or deductible above the federal maximum allowed amount causes loss of status. The maximum allowed amount is a combination of medical inflation plus 15 percentage points. Medical inflation last year was about 9 percent, so 24 percent is the maximum change for your deductible if you wish to maintain grandfathered status.

Fourth, many employers try to deal with premium increases delivered to them each year by adjusting co-pays. But if the plan increases any co-pay for any service by more than the maximum allowed amount, it loses grandfathered status. The maximum amount is different for flat dollar co-pays than for deductibles and out-of-pocket expenses. It is the greater of $5, or medical inflation plus 15 percentage points. So if a co-pay is $10 and you want to raise it to $15, you’d be OK. But if you wanted to increase a co-pay from $50 to $100, you’d lose your status. It’s more than $5 and more than medical inflation plus 15 percent, because you’d be raising it 100 percent.

Fifth, if the employer decreases the contribution made for the plan premium for any tier of coverage by more than 5 percent, the plan would lose grandfathered status. For example, if the employer splits the contribution to premium costs with employees 60/40 and chooses to decrease that contribution to 50/50 the plan would lose grandfathered status. Sixth, if you change carriers or enter into a new insurance policy or certificate, you lose your status — even if you keep your plan the same. However, if your plan is self-insured, the employer takes on the full cost of the claims and doesn’t buy an insured product from a carrier, moving from one third-party administrator to another.

Finally, if the plan adds an annual limit on the dollar value of all benefits that will be paid out, the plan can lose its status. If you put in an annual limit and you didn’t have a lifetime limit in the past, you lose grandfathered status. Also, if the annual limit is added in place of a former lifetime limit and the new annual limit is lower than the former lifetime limit, the plan will lose grandfathered status.

Is it worth it to employers to do everything that will be required to maintain grandfathered status?

It’s different for every employer. Every employer should do the math, but don’t fear losing your grandfathered status. The Department of Health and Human Services is predicting that 70 percent of employers will keep their grandfathered status in the first year. From what we’re hearing on the street from agents, that number is really high.

We don’t think that many employers will be able to keep their status because they’re just too handcuffed. They need to be able to adjust their co-pays, deductibles and employee contributions in order to afford to offer benefits.

Marti Lolli is director of health care reform for Priority Health. Reach her at marti.lolli@priorityhealth.com.