All eyes turned to Vermont today as Governor Peter Schumlin signed into law a bill creating a board to oversee the planning and development of a state-sponsored insurance plan, Green Mountain Care. With the stroke of a pen, Vermont became the first state to move significantly toward a single-payer insurance system. One hurdle standing in Vermont's way is the need to secure a waiver from PPACA, which won't be available until 2017 under current law. Although there appears to be support for moving that deadline up to 2014, it remains to be seen how strong that support really is.
Today marks six months from the date that the Patient Protection and Affordable Care Act was enacted. Several key provisions of the law become effective today, September 23, 2010, including:
- Expansion of coverage for dependents up to 26 years old.
- Elimination of annual or lifetime dollar limits to the amount of money spent on health care services.
- Prohibition of denials of coverage to children under 19 years old for preexisting conditions.
- Coverage for all preventative services with no co-pays.
- Free preventative care (for all new plans).
These changes take effect immediately for any new policies bought after today. For those with existing policies, however, the changes will take effect either during the next open enrollment period (for employer-based plans) or at the time a policy is renewed (for individually-purchased plans).
Last week the United States Departments of Treasury, Labor and Health and Human Services issued Interim Final Rules providing guidance on “grandfathered health plans” under health care reform. The Patient Protection and Affordable Care Act (“PPACA”) set different standards for grandfathered health plans than for those plans not grandfathered. According to these regulations, health plans that existed on March 23, 2010 will be significantly restricted in the changes they can make to copayments, deductibles and benefits covered if the plans want to maintain grandfathered status and avoid the new requirements of PPACA.
Most plans will fail to qualify for grandfathered status over the next three years, according to the Departments’ analysis in the Interim Final Rules. The greatest impact will be on small employers with between 3 and 99 employees. The Departments estimate that between 49% and 80% of small employer plans will relinquish their grandfathered status by 2013. In addition, the Departments estimate that between 34% and 64% of large employer plans will relinquish their grandfathered status by 2013.
The Basics of Grandfathered Health Plans
Section 1251 of PPACA provides that the statute should not be construed to require an individual to terminate coverage under an individual or group health plan in which the person was enrolled at the time of PPACA’s enactment on March 23, 2010 (the “Enactment Date”). PPACA further provides that the statute’s reforms will not apply to these “grandfathered” plans unless specifically stated. For example, the prohibition on rescissions and the extension of dependent coverage until age 26 apply even to grandfathered health plans.
The Interim Final Rules explain that grandfathered plans include those group or individual health plans in which an individual or an individual and the individual’s family members were enrolled as of the Enactment Date. A grandfathered health plan does not cease to be grandfathered merely because one or more (or even all) individuals enrolled on the Enactment Date cease to be covered, so long as the group plan has continuously covered at least one person at all times since the Enactment Date. In addition, new employees and existing employees newly enrolled and their families may enroll in a grandfathered health plan after the Enactment Date and the coverage remains grandfathered.
Subject to special rules for collectively bargained plans, health plans sold to new entities or individuals after the Enactment Date will not be grandfathered, even if those plans were offered in the group or individual market before the Enactment Date. Accordingly, insurers that want to maintain grandfathered plans must keep existing plans separate from new plans, which will not be eligible for grandfathered health plan protection.
Changes Allowed without Forfeiting Grandfathered Status
There are only a few ways in which health plans can change without losing their grandfathered status, including the following:
- Changes to premiums;
- Increases to benefits;
- Changes to comply with federal or state legal requirements; and
- Changes to voluntarily comply with PPACA requirements.
In addition, a plan maintains its grandfathered status even if changes were made that were effective after the Enactment Date so long as the changes were agreed to by contract or a filing with the state insurance department on or before the Enactment Date. Moreover, changes adopted prior to the release date of the Interim Final Rules on June 17, 2010 will not result in a plan’s loss of grandfathered status, so long as such changes are revoked or modified effective as of the first day of the first plan year beginning on or after September 23, 2010. The preamble to the Interim Final Rules give health plans and insurance issuers some leniency here, stating that regulators may not enforce changes made in good faith compliance with these grandfather requirements prior to June 17, 2010 (the official release date of the Interim Final Rules) if the changes only modestly exceed those changes permitted under the regulations.
Disclosure and Documentation Requirements
Grandfathered health plans must disclose to their enrollees in plan materials that they are grandfathered. The regulations request comments as to the particular language that plans should use for this disclosure. In addition, insurers must maintain records documenting the terms of the grandfathered plan that were in effect on the Enactment Date and any other necessary supporting documentation to demonstrate the plan’s grandfathered status.
How Plans Will Lose Their Grandfathered Status
There are many ways a health care plan will lose its grandfathered status, including the following:
- Eliminating all or substantially all benefits to diagnose or treat a particular condition;
- Increasing any percentage of coinsurance;
- Increasing a fixed-amount cost-sharing requirement, other than a copayment (e.g., a deductible or out-of-pocket limit), if the total percentage increase in the cost-sharing requirement is greater than the “maximum percentage increase” (defined in the statute as medical inflation plus 15 percentage points);
- Increasing a fixed-amount copayment, if the total increase in the copayment exceeds the greater of either: (1) the “maximum percentage increase”; or (2) $5 increased by medical inflation since the Enactment Date;
- Decreasing employer contribution, whether based on the cost of coverage or on a formula, by more than 5 percent below the contribution rate in place on the Enactment Date;
- Imposing new or reduced annual limits; or
- Engaging in a merger, acquisition or similar restructuring with the primary purpose of covering new individuals under a grandfathered plan, the goal being to prevent grandfather status from being bought and sold as a commodity.
Notably, if an employer that enters into a new policy or insurance contract, the new health plan is not grandfathered. However, if a self-insured plan changes its administrator, the plan keeps its grandfathered status. Collectively bargained plans keep their grandfathered status until the expiration of the last of the collective bargaining agreements for the grandfathered plan expires.
What Should You Do Next?
Employers should determine whether, given the restrictions imposed by these regulations, maintaining their current health plan offerings as a grandfathered plan or forfeiting grandfathered status. In addition, employers, health plans and plan issuers may want to consider submitting comments in response to this Interim Final Rule by August 16, 2010 (60 days from the release of the regulations).