RPC Reg Spotlight September 7, 2011

 

Regulatory Action in the Spotlight:

 

“Grandfathered” employer health plans.

 

 

Adverse Effects:

 

  • Loss of current health care plans by employers and employees.
  • Employers face steep costs with new mandates.
  • Negative effect on wages and job growth.

 

 

Response of the Obama Administration:

 

President Obama promised the American people that, “If they liked their health care plans, they could keep it.”  Under Section 1251 of the Patient Protection and Affordable Care Act (PPACA), the Department of Health and Human Services (HHS) promulgated rules for grandfathered group health plans and health insurance coverage.  On June 17, 2010, HHS, the Department of Labor (DOL), and the Department of the Treasury jointly issued an interim final rule (75 Fed. Reg. 34538) on grandfathered health plans, stating that an existing group health plan in effect on March 23, 2010 is considered to be a “grandfathered health plan”, and not subject to most of the group health provisions of the PPACA.   Following reviews of comments submitted on this issue, HHS then published an amendment to the interim final rule on November 17, 2010 (75 Fed. Reg. 70114) to allow a group health plan to change insurance coverage without ceasing to be a grandfathered plan, provided the plans continue to fully comply with a very narrow set of standards.

 

 

Impact on the United States:

 

At face value, a person could reasonably expect to keep a health plan if it was in effect before March 23, 2010.  In reality, a plan can lose its grandfathered plan status if it experiences a “material change”.  By regulation, the term “material change” is defined as: (1) eliminating or significantly reducing benefits; (2) raising co-insurance or co-payments; (3) raising deductibles; (4) reducing employer contributions by more than 5 percent; or, (5) adding or increasing an annual limit on coverage.  Coverage resulting from collective bargaining agreements will enjoy relief from the potential of losing grandfather status, until the expiration of the collective bargaining agreement that was in effect on March 23, 2010. 

 

Failure to maintain a grandfathered plan can expose an employer to mandates of the PPACA, and ensuing additional costs.  According to a report by William Gallagher Associates, this can include first dollar coverage for preventative services, mandated patient protections, government reporting requirements, anti-discrimination based on health status, and limits on deductibles, co-insurance, and co-pays. 

 

 

In Closing:

 

The grandfathered plan regulations are narrowly restrictive and will eventually result in most insured migrating to plans fully covered by PPACA rules and mandates.  By 2014, a uniform health insurance benefit package will be dictated by HHS, with a minimum benefit defined to include behavioral health treatment, prescription drugs, pediatric services, vision, and oral care.  This, in turn, will lead to higher premium costs.  The Heritage Foundation’s Edmund Haislmaier notes that the premium increases resulting from the new federal benefit-setting will be the product of insurers  paying more of the cost for services they already cover, greater use of certain services by prohibiting cost-sharing, and federal regulations requiring plans to cover benefits or services that were previously excluded or subject to plan limitations.  So many restrictions have been set in place that, by the Administration’s own estimates published in the June 17, 2010 interim final rule, up to 80 percent of small employer plans and 64 percent of large employer plans would lose their grandfathered plan status by the end of 2013.  HHS estimated that approximately two-thirds of the employers that made changes in 2009 would have exceeded the threshold.

 

 

Relevant Legislation:

 

Majority Leader Eric Cantor announced that the House of Representatives, to spur job creation, will pursue a steady repeal of job-destroying regulations.  Grandfathered health plans were identified by House of Representatives committee chairmen as one of the 10 most harmful regulations.  The Ways and Means, Energy and Commerce, and Education and Workforce committees will be working on legislation this fall to protect the health plans that Americans currently have and like from disappearing or being forced to change because of rigid “grandfathering” regulations that significantly restrict protections for existing plans.