Agency Extends Relief for ‘Grandmothered’ Small-Group Health Plans

Transitional small-group plans that aren’t grandfathered get another year’s reprieve

Stephen Miller, CEBS By Stephen Miller, CEBS March 1, 2017
Agency Extends Relief for ‘Grandmothered’ Small-Group Health Plans

The Trump administration will give small businesses an extra year to renew so-called grandmothered health plans that don't comply with the Affordable Care Act (ACA) and that don't fall under the open-ended exemption for grandfathered plans.

Individual and small-group health plans that are not ACA-compliant but which took effect from March 23, 2010—the date of the ACA's enactment—through the end of 2013 are considered transitional or "grandmothered" plans. (The 50 states and the District of Columbia may define the small-group market as applying either to employers with up to 50 employees—the traditional definition prior to the ACA—or up to 100 employees.)

By contrast, grandfathered plans are those with unchanged major provisions that were in effect before March 23, 2010. They are exempted from many changes required under the ACA, and there is no termination date for grandfathered status as long as plans do not make significant changes that reduce benefits or increase costs to employees.

An Extended Extension

The federal Centers for Medicare and Medicaid Services (CMS) announced on Feb. 24 in an insurance standards bulletin that the states may extend the expiration date for grandmothered plans by an additional year, until Dec. 31, 2018. Previously, the Obama administration decided to allow these noncompliant plans to remain in place until Dec. 31, 2017.

"This approach will facilitate smooth transitions from transitional coverage to [ACA-compliant] coverage" for individual and small-group plans, according to the CMS announcement. Currently, at least 32 states are allowing renewals of transitional plans through the end of 2017, and 35 states permitted these renewals in 2016, Forbes recently reported.

The original extension for grandmothered plans came about "because [former President Barack] Obama was criticized for saying if people liked their health plan they could keep it, and that was not the case if they were required to purchase ACA-compliant plans," said Amy Gordon, a Chicago-based partner at law firm McDermott Will & Emery.

"Many states had stopped the sale of non-ACA compliant plans to strengthen the sale of ACA-compliant plans, while others have not," Gordon explained. "Premiums for non-ACA compliant plans are thought to be less expensive than for ACA-compliant plans because they presumably have healthier members who purchased them."

The CMS guidance "will likely anger insurers on the [ACA's public] exchanges that are selling ACA-compliant plans, as well as individuals who have purchased ACA-compliant plans in lieu of non-ACA compliant plans," Gordon said.

[SHRM members-only toolkit: Communicating with Employees About Health Care Benefits Under the Affordable Care Act]

ACA Death Watch?

Under the new guidance, individual and small-group plans in effect before 2014 "will continue to be exempt from most of the ACA's insurance reform provisions that otherwise became effective on Jan. 1, 2014," explained Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va., in a Health Affairs blog post.

The guidance states that it is based on a commitment to "smoothly bringing all nongrandfathered coverage in the individual and small-group market into compliance with all applicable" ACA requirements, he noted. "One must wonder, however, why four years will be enough for a smooth transition if three years was not," wrote Jost.

Unmentioned by the CMS announcement, but a distinct possibility, is that the one-year extension for grandmothered plans could be upended by broader legislation to "repeal and replace" the ACA, should such legislation be enacted before 2019.

Fewer Small Employers Offer Health Coverage

If small businesses like their group health care coverage, the extended reprieve will help them keep it—at least for an extra year—even if they are not willing to provide a more generous, and expensive, ACA-compliant plan. This could mitigate the trend of small businesses dropping their health benefits and leaving their employees to purchase individual policies.

The percentage of U.S. employers that provide employees with health insurance fell to 45.7 percent in 2015, a 1.8 percentage point drop from 2014, according to a new study by the Robert Wood Johnson Foundation, a philanthropy that supports health care research.

The number of larger employers that offer health coverage increased by 1.2 percentage points to 96 percent in 2015, compared to 2014. But that growth was offset by small employers—only 29.4 percent of them offered insurance in 2015, a 2.8 percent drop from the prior year, according to the foundation's analysis of data from the most recent Medical Expenditure Panel Survey conducted by the federal Agency for Healthcare Research and Quality.

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