More Drop Grandfathered Status to Control Costs

By SHRM Online staff March 14, 2012

Compliance with health care reform is driving up costs for some employers’ group health plans, and a majority of employers expect price increases to be passed on to employees, according to The Health Care Reform Survey 2011-2012 by insurance brokerage Willis Group Holdings.

The survey was conducted Dec. 8-19, 2011, among a wide range of U.S. employers of differing sizes (14 percent with more than 2,500 employees), industries and geographic regions.

Cost-Curtailing Trumps Grandfathering

Maintaining "grandfathered" status can insulate a health plan from certain administrative requirements and rules, including some (but not all) expanded coverage mandates. However grandfathered plans, as outlined in a U.S. Department of Health and Human Services (HHS) fact sheet, cannot raise co-insurance charges, cannot raise co-payment charges significantly and cannot raise deductibles significantly.

Only one-third of respondents maintained grandfathered status despite a desire to remain grandfathered, the survey found. The rate at which employers lost grandfathered status has far outpaced HHS expectations. For instance, according to a June 2010 HHS release, "by the time the health insurance exchanges are established in 2014, fewer—but still most—large employer plans will have grandfather status."

The accelerated loss of grandfathered status suggests that employers have had to make many plan changes to offset cost increases and have been more willing than expected to give up grandfathered status in order to control costs.

About a quarter of the responding employers have quantified the cost of compliance within their health plans. A majority of those employers said that the cumulative cost amounts to an increase of at least 2 percent, with many employers indicating that the increase was over 5 percent. Employers report that their most significant cost drivers are the provision of adult child coverage up to age 26 and the removal of the annual/lifetime limits for “essential health benefits.”

Additional findings from the survey include:

Employers expect that similar employers will pass on increased costs to employees. More than half of respondents felt that similar employers would pass more of the cost for dependent coverage on to their employees. One-third thought similar employers would reduce coverage to the lowest-cost package to avoid the “pay-or-play” penalty, and a majority of employers thought that wellness programs would be expanded in scope. Nearly two-thirds of the employers expected that employee contributions would be increased.

Employers are waiting to communicate health care reform changes to employees. In 2012, 40 percent of employers will be reviewing their strategies for communicating benefit rewards internally.

“Now that the health care reform act has entered the implementation phase, the costs and benefits associated with the act are coming into greater focus for employers,” said Jay Kirschbaum, practice leader for the national legal and research group at Willis Human Capital Practice, a subsidiary of Willis Group Holdings. “The survey suggests employers realize that costs of providing medical benefits will increase and that they will likely have to pass those costs on to their employees. It also suggests that, despite the increased costs, employers continue to value providing medical benefits to their employees and do not plan to eliminate that benefit but are considering the possibility that the state exchanges will provide a potential option.”

Finally, respondents indicated that “the new requirements will force them to think about their benefits in a strategic manner and as part of the total rewards they use to attract, retain and motivate employees,” Kirschbaum said.

Related Articles:

Study: CDH Plans Saved $9,700 per Employee over Five Years, SHRM Online Benefits Discipline, February 2012

Employers Accelerate Efforts to Control Health Costs, SHRM Online Benefits Discipline, November 2011

Switching Insurers Doesn't Doom Grandfather Status, SHRM Online Legal Issues, November 2010

Grandfathered Status Rule’s Impact on Group Health Care Weighed, SHRM Online Legal Issues, June 2010

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform Resource Page

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