updated March 26, 2019
Federal regulators want to help employers keep the grandfathered status of their employer-sponsored health plans that predate the Affordable Care Act (ACA), but not everyone agrees that keeping grandfathered plans at work is a good idea.
On Feb. 25, the departments of Labor, Health and Human Services, and the Treasury published a request for information in the Federal Register that asks employers about maintaining grandfathered status for health plans. Grandfathered plans are those that are fully insured or self-funded, regardless of size, with major provisions that have gone unchanged since March 23, 2010, the date of the ACA's enactment.
The regulators asked employers to comment on whether any of the requirements for maintaining grandfathered status create challenges, and how these requirements could be modified to reduce those challenges. They are accepting comments through March 27.
Grandfathered plans can offer coverage that does not comply with all ACA requirements. They need not cover preventive care at no cost to employees, for instance, or impose out-of-pocket spending limits for in-network care. To stay grandfathered, these plans cannot significantly raise co-payment charges or deductibles, or make other kinds of cost and coverage changes.
According to research by the nonprofit Kaiser Family Foundation, last year 20 percent of employers offered at least one grandfathered health plan, down from 23 percent in 2017, and 16 percent of covered workers were enrolled in a grandfathered plan.
"Quick action on the part of the [federal] departments might stabilize the number of employer plans that retain grandfathered status," wrote Jay Kirschbaum, vice president of compliance services at Lockton Benefit Group in Kansas City, Mo.
Keeping plans grandfathered isn't easy, he noted, and among employers that desired to keep grandfathered status, "many may have inadvertently lost that status over the years."
Given that grandfathered plans have some flexibility other plans don't have, "those employers that sought to retain grandfathered status as long as possible would likely welcome additional flexibility," such as through new rulemaking, to maintain that status, Kirschbaum noted.
"While grandfathered plans provide employers with some flexibility to exclude certain services from coverage, such as any of the essential health benefits, there are some distinct disadvantages," said Kim Buckey, vice president of client services at Burlington, Mass.-based DirectPath, a benefits education, enrollment and health care transparency firm. For instance, employers are severely limited in how much they can increase premiums (not more than 5 percent annually) and co-insurance or co-pays (no more than the rate of medical inflation), she explained, "which are all tools employers typically use to keep the coverage they offer affordable."
She added, "There may be a negative impact on attracting and retaining talent if the plan has not adopted some of the key provisions of the ACA, such as 100 percent coverage of preventive care. However, some employees may find the trade-off of a lower relative plan premium worth it."
Some employers may be burdened by the requirement to provide employees with an annual notice of grandfathered status, Buckey noted, "although this could be combined with enrollment materials or other annual legal notices."
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Letting Grandfathered Plans Retire
Some benefit advisors are strongly opposed to keeping plans grandfathered.
"It's astonishing that we're approaching nine years of the ACA, and we're looking to prolong grandfathered status of group health plans even further," said Shandon Fowler, founder and principal of benefits consultancy Four8 Insights in Charleston, S.C. "Millions of Americans have benefited from the expansion of preventive care without cost-sharing and the ACA's essential health benefits provisions. And it's also been shown that group coverage in aggregate has slowed its year-over-year cost increases at the same time that enrollments in grandfathered group coverage has gone from over 50 percent to about 16 percent."
When employers have to administer both "ACA-approved" and grandfathered plans, he added, they "have to keep two administration approaches active, which ultimately leads to added costs. Those who are keeping them alive aren't doing so under any supportable cost-cutting measures at this point."
He added that "other, better options are available" for keeping health plan costs under control while remaining compliant with the ACA.
What About ‘Grandmothered’ Plans?
Distinct from grandfathered plans are so-called grandmothered small group and individual market health plans that are not ACA-compliant and which employers adopted during a transition period from March 23, 2010 through the end of 2013.
"Grandmothered plans comply with the ACA’s early market reforms, such as the coverage of preventive services without cost-sharing and dependent coverage to age 26. However, these plans do not comply with most of the ACA’s major reforms that went into effect on Jan. 1, 2014," Health Affairs reported.
While there is no termination date for grandfathered status as long as plans do not make significant changes, grandmothered plans don't fall under the same open-ended exemption.
Grandmothered plans "were meant to have a short shelf-life and were required to terminate at their first renewal after the implementation of the [ACA] in 2014," wrote Steve Byrd, a consultant at Durham, N.C.-based benefits advisory firm Hill Chesson & Woody, a Gallagher Company. "In 2014, the Department of Health and Human Services extended the transitional relief for these plans through 2016. Ever since, additional extensions were given in 2016 through 2017, in 2017 through 2018, and in Oct. 2018 through 2019."
On March 25, 2019, the Centers for Medicare and Medicaid Services issued an insurance standards bulletin to once again allow insurers, so long as states approve, to extend the life of grandmothered policies. "Insurers must send a notice to their enrollees informing them of the ACA protections that are not available under grandmothered policies and of the opportunity to get ACA-compliant coverage through the marketplaces," Health Affairs reported.
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