Question of the Month

How can a plan lose grandfather status?

Grandfathered plans are given wiggle room in order to keep pace with market conditions. The routine changes allowed include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with State or other Federal laws. Premium changes are not taken into account when determining whether a plan is grandfathered. The following actions, however, will cause a plan to lose its grandfathered status:

1. Significantly reduce benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.

2. Raise co-insurance charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill). Grandfathered plans cannot increase this percentage.

3. Significantly raise co-payment charges. Grandfathered plans will be able to increase co-payments by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. For example, if a plan raises its copayment from $30 to $50 over the next two years, it will lose its grandfathered status.

4. Significantly raise deductibles. Grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points. In recent years, medical costs have risen an average of 4-to-5%. Thus, this formula would allow deductibles to go up, for example, by 19-20% between 2010 and 2011, or by 23-25% between 2010 and 2012. For a family with a $1,000 annual deductible, this would mean if they had a hike of $190 or $200 from 2010 to 2011, their plan could then increase the deductible again by another $50 the following year.

5. Significantly lower employer contributions. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than five percentage points. For example, when an employer decreases its share and increase the workers’ share of premium from 15% to 25%. The contribution rate means the amount of contributions made by an employer compared to the total cost of coverage, expressed as a percentage. The total cost of coverage is determined in the same way the applicable premium is calculated under COBRA.

6. Add or tighten an annual limit on what the insurer pays. Some insurers cap the amount that they will pay for covered services each year. The regulations provide three scenarios as to annual limits. First, if the group plan didn’t impose an annual limit on March 23, 2010, it may not add one and remain grandfathered. Second, if the group plan did have a lifetime limit but no annual limit, it cannot add an annual limit with a dollar value lower than the lifetime limit and remain grandfathered. Third, if the group plan imposed an annual limit on March 23, 2010, it cannot decrease the dollar value of the annual limit and remain grandfathered.

7. Changing insurance companies. If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan. This does not apply when employers who provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.

In the event a grandfathered plan forfeits its status, consumers in these plans will acquire additional new benefits including 1) coverage of recommended prevention services with no cost sharing, and 2) patient protections such as guaranteed access to OB-GYNs and pediatricians.

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