Grandfathered Health Plans and Dealing With Reform

Brokers are quite naturally concerned about their future under health care reform. Times of change are always unsettling and the new legislation is change of a grand magnitude. Everything from plan design to compensation to distribution mechanisms are undergoing a transformation. What makes things worse is the uncertainty. While the broad outlines of health care reform are pretty clear, in reality there’s more unknown about the details than known. Not only will regulators at the state and federal level interpret the law, but so will carriers, employers and others who need to comply with those regulations. Then there are the inevitable bills Congress will consider to tweak this or that in the legislation (some of which has begun – more about that in a future post).

Brokers are responding to the coming changes and current uncertainty in several ways. Some remain angry that health care reform was passed at all. They rail against the law, call lawmakers names, predict the demise of various political careers, etc. etc. Venting feels good, but outside of the ballot box, it’s hard to argue venting accomplishes much.

Then there’s brokers who ignore what’s happening around them. Today’s just another day and tomorrow will be more of the same. But ignoring reality – change is coming – is no more productive than raging against reality. It’s no doubt better for one’s blood pressure – and may even be kinder to those around you, but it doesn’t accomplish much.

Another group of brokers are preparing for reform. They may be angry about the legislation, but they don’t let their emotions prevent them from dealing with the reality of it. They are examining their business practices, their revenue streams, their client base, their skill sets and they are thinking about the future. They are not making drastic changes right now, but they know they will have to modify, maybe even transform, their business over time.

These brokers are focused on what needs doing now. They know the provisions of the Patient Protection and Affordable Care Act take effect over time, some in a few weeks and and others over several years. They may have hopes for changes to these provisions, but until they’re changed, these brokers know they have to deal with the cards as they’re dealt.

And by doing so these brokers will not only be better positioned for what is to come, but they’ll be more successful in the near term providing them with the resources they’ll need in the future.

Here’s an example of how. The PPACA imposes a host of requirements on individual and group health plans. However, plans can avoid some of these requirements if they meet certain conditions. Such plans are referred to in the law as “Grandfathered” plans because a key criteria is that they have been in-force prior to enactment of the new health care reform legislation (which occurred on March 23, 2010).  Interim Final Rules relating to Grandfathered Health Plans were promulgated by the Departments of Treasury, Labor and Health and Human Services in June 2010. (Comments on the interim rules are due August 16th. While the departments could modify the rules based on this input, they are not expected to be making substantial changes).

There are a lot of resources for understanding the Grandfathered Plan regulations online from folks like Employee Benefit News, the Society for Human resource Management, and HHS’ at their HealthReform.Gov web site. But here’s the gist of what’s involved as I understand it:

Grandfathered plans have to comply with some, but not all, of the Patient Protection and Affordable Care Act. Grandfathered plans can be fully-insured or self-insured, group or individual plans. They must have been in-force on March 23, 2010 and remain with the carrier providing the coverage at that time. While some changes to the plan are permissible, they cannot have significantly increased out-of-pocket costs or reduced benefits. For example, deductibles may and out-of-pocket maximums may increase by medical cost inflation plus 15 percentage points. Plans can voluntarily adopt some of the consumer protection rules contained in the PPACA without losing their status Grandfathered status, but they need to be careful about any significant changes other than complying with new laws or regulations. Significantly, premiums may be increased without jeopardizing a plan’s status. Grandfathered plans must also maintain certain records and there are exceptions for insured collective bargained plans.

Grandfathered plans do not need to meet the minimum benefit requirements laid out in the new health care reform law nor do they need to provide 100 percent coverage for preventive care. They are also exempt from guarantee issue requirements and certain changes to the ways claims will be processed.

However, even Grandfathered plans must comply with the Patient Protection and Affordable Care Act provisions related to pre-existing conditions, excessive waiting periods, the lifting of lifetime maximum benefits (and, for group plans, but not individual coverage, the eventual elimination of annual maximum benefits), and must extend coverage for dependents age 26.

Whether seeking Grandfathered Plan status is in a client’s interest will depend on the specific circumstances for each client. And brokers should contact their carriers to learn more about how each of them are handling this issue.

And that’s the key. Brokers need to be looking at their clients situation, talking to their carriers, and helping their clients navigate this change. Because once a group or individual loses Grandfathered status they cannot get it back. Even though most clients will likely conclude they don’t need to be Grandfathered, its asking the question that matters.

One of the findings from the Trailblazed Sales Project Study I conducted is that High-Growth Producers communicate with their clients more often than do Low- and No-Growth Producers. Doing so results higher retention, more opportunities to meet the needs of those clients, and increases these brokers’ status as a trusted advisor. In short, communicating with clients other than at renewal time is good for your clients and for your business. This is especially so in times of change. If brokers are uncertain about health care reform, employers and individuals are even more adrift. Brokers proactively contacting them about issues like Grandfathered Plan status are demonstrating their value.

There’s another reason why brokers need to be contacting all their clients about the Grandfathered plan issue sooner rather than later. What happens if they meet a competitor who asks that dreaded question, “You mean your current agent has told you about this? That’s just not right!”

Put another way: Clients need help in understanding how the new health care reform law impacts them. Brokers preparing for the future are helping their own clients – and the clients of other brokers – understand these issues. Brokers who are blinded by their anger or who are in denial about reform are not.

There are many ways to respond to health care reform. Some of those responses are just smarter than others.

One thought on “Grandfathered Health Plans and Dealing With Reform

  1. Alan,

    Since implementation of the Affordable Care Act is so importan and the loss of grandfathering, with the simple change of insurance carriers, such a problem or obstacle to the affordability of health care benefits, I am including my Public Comment to DHHS on the Interim Final Rules on Health Plans and Granfathering, for your review.

    TO: Department of Health and Human Services

    FROM: Malcolm Cutler Jr.
    Cutler Insurance Services

    DATE: August 17, 2010

    VIA WEB: http://www. Regulations.gov

    Grandfathered Health Insurance Plans: Changing Insurance Carriers and Losing Grandfather Status

    Some time last year the statement from President Barak Obama was “If you like your current health insurance, you can keep it” as he was making his case for health care reform. On June 17 2010, the Interim Final Rules for Group Health Plans and Health Insurance Relating to Status as a Grandfathered Health Plan were published with Public Comment allowed for 60 days – until today August 16, 2010. Our initial review of the Interim Final Rules indicated that one of the Interim Final Rules, as proposed, losing grandfathering by changing insurance carriers, is a no win proposition for employers:

    -Employers that seek a change in insurance carriers to save costs and preserve benefits lose their grandfathered status and incur the costs of government mandates.

    -Employers who stay with their insurance carrier to save their grandfathered plan pay higher costs than the competitive market place could offer by changing carriers.

    We communicated this very negative result to our clients, and how we hoped that, with implementation of the Affordable Care Act, the Act would not preclude competitive bidding to save costs and benefits. Since today is the close of comment on the Interim Final Rule on losing grandfathering for changing insurance carriers, we would like to pose this question: Should an Employer lose Grandfathered Status simply by changing insurance carriers?

    To make the case we would like HHS (or the appropriate government agency) to review the following client renewal and insurance carrier change.

    We have a client that pays 50% of the employee cost for health insurance for their employees. In June, the client received a 21% increase in rates from their insurance carrier, effective August 1, 2010. With such a large increase, we did the usual market survey for alternative plans, and in this particular case, we decided that since employees would have to change insurance carriers and perhaps doctors, we would try to actually increase the benefits to have the employees more comfortable in making the change.

    When we got done with our market search, we changed insurance carriers, increased the benefits for all employees, as discussed, AND all employees received a 30% decrease from their renewal costs and a 12% reduction in costs they paid for the prior year – A win win option for the employees and their employer. The question that we are asking was the loss of grandfathering really intended to discourage such a changes? We hope not.

    As we completed our analysis for this employer, we realized that for the past 25 years, through the insurance market place, we have been changing carriers and designing benefits that has allowed us to say to our employer clients and their employees “If you like your current insurance, you can keep it,” because we will work to keep your benefits rich and costs contained through the competitive independent insurance market place.
    We have no problems with the relative changes in cost sharing, deductibles, and cuts in benefits that forfeit grandfathering, but to close out the competitive market place is a mistake and we hope our client example indicates how big a mistake it is.

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