The Patient Protection and Affordable Care Act (PPACA) provided new standards for employer-sponsored health plans but many of those standards do not apply to so-called “grandfathered” health plans. “Grandfathered" plans are defined as those plans (1) that were created before the enactment of the PPACA (March 23, 2010) and (2) which have not been substantially changed since that time. One has to wonder whether plans are keeping their grandfathered status more than a year and a half after health reform was enacted.
Basic rules for grandfathered plans
First, the basics on grandfathered plans. Grandfathered plans are exempted from some health reform requirements, including covering preventive benefits with no cost sharing or annual limits and having an external appeals process. To obtain this status, employers cannot make significant changes to their plans that reduce benefits or increase employee cost, specifically, companies cannot significantly change cost sharing, benefits, employer contributions, or access to coverage in grandfathered plans, according to regulatory guidance from the Department of Health and Human Services. Further, new employees can enroll in a grandfathered plan as long as the firm has maintained consecutive enrollment in the plan.
Although grandfathered plans are exempted from most of the PPACA’s new requirements, as noted above, they are subject to some PPACA provisions, such as (1) the uniform explanation of coverage, (2) the reporting of medical loss ratios and provision of premium rebates if medical loss ratios are not met, and (3) the extension of dependent coverage to age 26. Companies must decide whether to grandfather their insurance plans, which limits the changes they can make to their plans, or whether to comply with the full set of new health reform requirements imposed by the PPACA.
Current state of grandfathered plans
So where do grandfathered plans stand now? Benefits experts had indicated that few firms expect to maintain grandfathered status for their health plans beyond the next few years. However, according to a recent survey by the Kaiser Family Foundation and the Health Research & Educational Trust (HRET), 72 percent of firms reported that they currently had at least one health plan that was a grandfathered plan. Small firms (defined by Kaiser/HRET as having 3 to 199 workers) were more likely than larger firms to report having at least one grandfathered health plan (72% vs. 61%).
The Kaiser/HRET survey also found that 56 percent of covered workers were enrolled in a grandfathered health plan. Covered workers in small firms (3-199 workers) are more likely to be enrolled in a grandfathered health plan than covered workers in larger firms (63% vs. 53%), the survey said.
Why not grandfather? Where companies indicated that their sponsored plans were not grandfathered, they were asked why the plans aren’t grandfathered (the firms could provide more than one reason). According to Kaiser/HRET, 28 percent of covered workers are in plans that were not in effect when the PPACA was enacted. Roughly similar percentages of workers are in plans where the deductibles (37%), employee premium contributions (35%), or plan benefits (29%) changed more than was permitted for plans to maintain grandfathered status. Among firms offering some other reason, numerous firms responded that being grandfathered was administratively difficult or that being grandfathered would limit the firm’s flexibility in the future.
Once again, the reasons given as to why plans were not grandfathered varied by firm size. Workers in small firms (3 to 199 workers) are much more likely than workers in large firms to be in a new plan that was not in effect when the PPACA was enacted (63% vs. 18%) and generally less likely to be affected by plan changes. Employees in large firms are more likely than workers in small firms to be in a plan where the deductibles or copays have changed (40% vs. 24%) or where employee premium contributions have changed more than permitted by federal law (41% vs. 15%).
It’ll be interesting to see how these numbers change over time.