Gov't agencies tout advantages of new "grandfather" rule

According to a Q&A sheet on HealthReform.Gov, a website managed by the Department of Health and Human Services (HHS), a new interim final rule issued by the HHS, Labor Department, and IRS that implements the grandfather provisions of the Patient Protection and Affordable Care Act (PPACA) creates a win-win situation for both employers and employees.

Health plans that were in existence on March 23, 2010 can be “grandfathered” and exempt from some of the PPACA’s provisions on individual and group market reforms, unless they significantly cut or reduce benefits, raise co-insurance charges, co-payment charges or deductibles, lower employer contributions to premiums by more than 5%, or add or tighten an annual dollar limit on what an insurer pays for covered services. Cost adjustments are allowed to keep pace with inflation, and such premium changes will not be used to determine whether or not a plan is grandfathered. A new grant program has recently been announced by the Obama administration that is designed to strengthen states’ abilities to spot unreasonable premium increases and take appropriate action.

If a plan loses its grandfathered status, individuals in that plan will receive certain benefits such as coverage of recommended prevention services with no cost sharing and guaranteed access to OB-GYNs and pediatricians.

The rule is designed to let employees keep their current coverage while giving them new benefit protections. It will require employers and insurers to inform employees and insureds with regard to whether or not their plan is grandfathered. The rule will not, according to the website, drive up health insurance costs, cause employers plans to eventually lose their grandfathered status, make it difficult for health plans to respond to rising health care costs and other changes, drive up employers’ coverage costs, or create more red tape for employers. The Q&A emphasizes that grandfathered health plans will be able to make routine changes, including cost adjustments and the addition of new benefits, to their policies.

Special benefits are provided for people who work in smaller firms. Such firms change insurers more often due to annual fluctuations in premiums. Small businesses may, starting in 2010, qualify for a tax credit to offset up to 35% of their premium contributions, and in 2014, up to 50% of their premiums.

It is estimated that health plans for well over half of American workers and their families will remain grandfathered through 2013, with change coming more swiftly on the individual market, since up to two-thirds of individual policyholders switch coverage in a given year.

The HHS, Labor Department, and the IRS are apparently using the new grandfather rule to strike a balance between letting health plans make routine changes and preventing those plans from making such extreme changes that the plans are no longer recognizable. All three agencies have the authority to enforce the grandfather rule, and are claiming that it should ease the transition that the health care and health insurance industries must make to comply with the PPACA.