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Can your company really afford your ‘grandfathered’ health plan?

by June 25, 2010 27 Comments

stethoscope-squeezing-money

The healthcare reform bill included assurances that employers’ current plans would be “grandfathered” — companies could keep their coverage without being subject to new, expensive mandates. But just-released federal rules make it clear that maintaining that “grandfathered” status is likely to be a very pricey proposition.

The Departments of Labor, Treasury and Health and Human Services have jointly issued interim regulations on the grandfathering provisions. And they are not good news for employers.

Under the new regs, companies lose their grandfathered status if they:

  • increase customer costs, or
  • significantly reduce health benefits.

What you can’t do

Under the new regs, if a company wants to stay grandfathered, it can’t:

  • Significantly cut or reduce benefits. For example, firms can’t eliminate coverage for people with chronic conditions like diabetes.
  • Significantly raise co-pays. Grandfathered plans can’t increase staff co-pays by more than $5 (adjusted annually for inflation) or a percentage equal to medical inflation plus 15 percentage points. For instance, a plan would lose grandfathered status if co-pays rose from $30 to $50 over two years.
  • Significantly raise deductibles. Plans can increase deductibles only by a percentage equal to medical inflation plus 15%.
  • Significantly lower employer contributions. Grandfathered plans can’t decrease the percentage of premiums that employers pay by more than five percentage points.

Yes, there are some changes you can make to your plan without threatening your grandfathered status. But there’s not a lot of wiggle room.

You can make modest adjustments to existing benefits, voluntarily adopt new consumer protections under the new law, and make changes to comply with state or other federal laws.

Think your company will be able to keep its health coverage as it stands today? And if you lose your grandfathered status, what do you foresee happening to your health benefits? Let us know in the Comments section below.

Categories: Employment Law, Healthcare Reform, Management, Pay and Benefits, Special Report
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  • CM

    Unfortunetly, a lot depends on what the insurance company brings to the table for the next renewal. If they do what they normally do, which is try to increase rates by 25% or more (and that is with some benefits lowered, such as a higher prescription copay), then I don’t know how we will be able to afford to keep providing insurance to our employees. Since we pay 75% of employee costs, if we keep that ratio going with the increase we would lose our grandfathered status since the employee would have a “substantial” increase for his portion. I really don’t know how we will be able to offer insurance if we will have to take on more of the employee costs.

  • George Evans

    I believe this action was a process intentionally designed to result in universal healthcare, controlled by the federal government.

  • RandiG

    The only way we can continue to offer health insurance is by raising the deductible (which makes the premiums more affordable for everyone) and sometimes, raising the co-pays. As CM said, a lot depends upon the offerings by the carriers. Our employer contribution has remained the same dollar amount for several years, but as rates increase, that percentage decreases so we would not be in compliance. We’re struggling as it is, and any increase in our cost for health insurance would probably put us out of business.

  • Don

    Because of the estimated increase that carriers are quoting, I’m not sure anyone will be able to comply. I wish the Obama adminsitration would explain again how all of this is going to decrease the costs of healthcare.

  • jo

    Our only hope is that the insurance companies will work with us businesses. If business can’t afford the insurance rates then they, the insurance company, will be out of business. This is just one big mess!!! More like a nightmare.

  • http://HRMorning No Name

    I agree with all comments made so far and want to add one more issue that VERY FEW articles or summaries are bringing to light. There is also the limitation specified in the Internal Final Rule ELIMINATING THE OPTION TO CHANGE INSURANCE CARRIERS FROM THE CURRENT CARRIER. So, no matter how well you stay within the parameters as identified in the above article, you are captive and unable to shop for a better renewal rate. WHY was this point left out? It is no small detail. And instead of just comparing rates for renewal between the “Blues” for example, which is simple calculation of addition/subtraction to an algebraic formula that includes the Rewnal Rates-same carrier PLUS the “dollar-value” of Grandfather Plans to a Lower Rate-new carrier MINUS the “dollar-value” of Grandfathered Plans. What are those dollar-values? If you are trying to take this into consideration for a August 1 renewal… if you feel like a potential “duck in a barrel” then welcome to my world.

  • AB

    I agree with George. I do not want to sound like the harbinger of doom, but after a long conversation with my insurance agent, I don’t believe grandfathering is going to be a viable option for my current plan which is a pity. I have worked extremely hard to keep my benefits rich while keeping deductibles and premiums reasonable. I pay 100% of employee premium. In addition, I pay 100% of employee’s family premium on my professionals which make up 40% of my staff. We are not a large group, we are not young, and we have several health strikes against us including cancer. Health insurance is the crown jewel of my benefits package and I don’t want to discontinue my group plan, but I may not have a choice if I want to stay in business.

  • David V

    George hit the nail on the head….I would say if you think that all of this is “unintended consequences” of well intended legislation, you are indeed naive.

  • Angela

    Are the insurance companies going to be regulated also? How can a company keep the same rates and deductibles if the insurance company no longer offers them? If we are forced to lose that coverage because of conditions we cannot control, are we then forced to take up the government policy? There are still a lot of questions that need to be answered.

    I personally don’t want government healthcare. My mother is on Medicare, my father is a Veteran, and my husband is covered through the Indian department. They all have to wait for approval for procedures, then they get turned down because the finances are not available, then their medications are cut or discontinued because the government doesn’t offer them anymore. It us frustrating to say the least!

  • Terrie J

    “Grandfathering” is a joke. Like so many other things in this so-called reform package, it sounds good on the surface but the reality is that the fine print is going to make it impossible.

    We contribute 75% of the entire premium for both employees and dependents. It’s a very generous contribution, and a much greater benefit than our employees will ever see under healthcare “reform.” We’re going to hang in there as long as we possibly can, but as a small group that has had one extremely large claim this year, I predict major problems at renewal. I was afraid “reform” would come down to this, so I fought tooth and nail last year to get a three-tiered plan with decent benefits for our group. If I’m very lucky, I might be able to grandfather at least one of the three plans.

    The whole reform program makes me sick – our employees are going to end up with higher costs, higher deductibles, and far fewer benefits. The reductions and exclusions to flex-spend programs are going to make it so much worse by eliminating deductible expenses and exposing more income to taxes.

    My only hope is that one of the suits claiming unconstitutionality will prevail.

  • dozer

    I think out insurance providers will come to us a little differently in the near future, since they will want to keep our business-most likely-and will factor this data into their renewal contracts. They will probably ask to go to the limit without going over, or ask the employer to cover a slightly higher percentage to keep grandfathered in.

  • Mary

    Rep. Steve King has filed a discharge petition on legislation to repeal Obamacare. If he gets 218 signatures on his petition, Nancy Pelosi is forced to have a vote on the legislation whether she wants to or not. Please call all your representatives. Urge them to sign the petition to repeal Obamacare.

  • JAGGER

    I completely agree with George. DESIGNED to accomplish the end result of Federal take over of health care which we will all pay for with out of reach taxes. I am SO sick of this lying, manipulating, deceiving administration. One has to question EVERYTHING they do. I don’t trust them AT ALL. When the people fears their government, there is tyranny…..when the government fears the people, there is LIBERTY. Give me Liberty……….

  • RandiG

    For those of you who pay 75-100% of the premium for your employees, that’s great and this will hit you harder, I think. But I work for a small company that has been hit very hard by the recession (which is not Obama’s fault, by the way) and we pay only half of the smallest premium on our plan (which means half of the employee-only, cheapest plan with the highest deductible). An employee with family coverage is paying $894.78/month, so our plan is not affordable to begin with. Anything that makes health insurance more affordable will be welcomed by our employees. There’s no parity in health insurance coverage and premiums, and that’s one of the things reform is trying to address.

  • JohnnyHR

    Heve you ever seen a piece of legislation that was totally coherent as passed? Congress slams through a law, then the real people who have to deal with it in the trenches every day are left scratching their heads trying to figure it out. Health care “reform” is no different. The democrats were in such a hurry to get this law passed and the republicans were so hell-bent on blocking it, reason took a vacation. This legislation will NOT curb healthcare costs because (1) Congress doesn’t know how to save money on anything and (2) it doesn’t address the core problems of health, but is rather a feeble attempt at addressing healthcare insurance problems. I especially like the provision where insurance companies cannot drop someone because of a pre-existing condition. This is great in theory. But the insurance companies have to somehow cover their increased costs for insuring the chronically ill, so they will raise their rates to cover their costs. Everyone except those who will get their insurance for nothing – including Congress – will pay more. No wonder government has such an abysmal approval rating by the American public.

  • CB

    What is really interesting is that “eligibility” changes to the plan don’t appear to change the grandfathered plan status. For example, if a self funded plan wanted to remove legal guardianship of an individual, that doesn’t appear to change the grandfathered status. But if the schedule of benefits are changed, that could trigger the grandfathered status to be removed. I think people who write these rules really don’t work in the insurance industry.

  • JAGGER

    YOU “THINK?” I could bet they don’t even “work”. Never have, never will. Just sit around “lawyering” spending our money.

  • KD

    This whole matter does not make sense. Employers can’t change their plans if they want to be grandfathered, you are going to be required to increase benefits and those covered by the Plans but can’t increase premiums. They dictate what coverage must be included and we eat the costs. This reform is not what the nation needs and certainly going to result in employers just giving up on trying to provide health care to their employees. In 2014, most employers will just let their employees go into the exchange (national healthcare) and that was the plan from the “Hill” all along. Go vote in November and maybe some could be repealed or changed.

  • ZS

    There’s definately a lot to be figured out here. No one has said that the current reform plan is perfect – it will require adapting and correcting as it goes. I’m just glad that we’ve taken a first step. Hopefully, our representatives will be able to work together to fix those things that need to be fixed, because regardless of what side of this debate you are on, we can all agree that there will need to be corrections and updates to the healthcare bill.

    Based on my understanding of the bill, the insurance companies are going to have to play ball too, not just employers. If the insurance companies have to meet coverage and premium requirements, the way they work with employers will be different and should give employers more negotiating power than before.

    Isn’t anyone else ashamed that the US spends more per capita for health care and treats a smaller percentage of citizens than any other developed country in the world? Health care should not be dictated by who can pay and who can’t. It’s not a commodity. We need healthy employees in all sectors to make the system work.

    (And, as a side note – the Reform Bill was tossed around for over a year. How is that being rushed (“slammed”) through? The Patriot Act was passed in a matter of months…. that’s rushed. The “rushed” arguement doesn’t hold water. Can we move on to another claim?)

  • JAGGER

    ZS……….I was going to give you a pass…..Some people just don’t look outside the box, so they can’t be expected to know anything except the face value that is spun around the “Health Care Reform”. Yes, I was just going to shrug it off and let it go.

    But I have to respond to your “side note”. No on has said it was rushed through. Quite the contrary. If it had had an up and down vote anytime between when it was first introduced right through to the final (cram down) it would never have passed. The majority of the American People did not want this bill. No it wasn’t rushed, nor was it “slammed”. It was CRAMMED down our throats in the most unamerican fashion of any bill ever presented. It is simply a BAD BILL. Does nothing to address the high cost of medical care.

    You say health care is not a commodity. What, pray tell do you think it is? When “human people” are providing a service, free human people, I might add, yes it is a commodity. It is something you can’t force, or build a machine to deliver. It is only available (at any cost) because some human beings decided to make treating the ill their profession. Now it is up to the ingenuity of other human beings to figure out how to deliver it at a price we can afford. This “BILL” doesn’t do that. But it wasn’t intended to. It was intended to “slowly nudge” the insurance companies out of the way so the Government can step in dictate to us what we can and can’t do. Take over the Health Care of a nation, and you take over the nation. Good bye freedom. Thanks a lot.

  • MThompson

    @JAGGER This is a HR professionals forum, not a Tea Party rally. I hope you will frame future posts within the context of HR policy and administration or else find a more appropriate forum.

  • MThompson

    @MARY Coffee for the moderator! —- U>

  • MThompson

    @ dozer “I think our insurance providers will come to us a little differently in the near future” This will depend on what form public exchanges eventually take, if they happen at all. As I’m seeing it, if public exchanges are made viable, employers will probably see an increase in adverse selection in their groups.

    If public exchanges are actually competitive, adverse selection is reduced but I think the employer group loses bargaining position. Our group would be, in effect, a somewhat smaller fish.

  • JAGGER

    Sorry Mr. Tompson, I apologize if you can’t handle it. Sometimes the truth has a way of inflamming and condemning.

    I like this post because it is made up of people who, for the most part, seem to be of high intelligence and are willing to discuss in an intelligent manner, issues that will affect us all, if not today, in the very near future. Take the appointment of Dr. Berwick. That will affect everyone on this forum and everyone dealing in HR. But because it doesn’t seem to be “newsworthy” enough for the mainstream media, the alphbet networks…..most people will not even be aware of the fact that he is a died in the wool socialist and has advocated for European style healthcare for a decade, finds healthcare to be the necessary path to income redistribution, and of course, rationing, but with our “eyes” open.

    As HR professionalists, we have a certain responsibility to know more than the other employees of our Companies. We sometimes have to look beyond the confines of the mainstream media to ferret out the truth. Sorry it hurts so much, but it WILL set you free.

  • concerned small business owner

    We will lose our ability to compete with other companies that can afford pricey benefits and better salaries. We were offering section 125 cafeteria plans to increase take home pay. The tax credits, etc. will not help us.

  • JohnnyHR

    Hey, Jagger. Who says it’s the truth? And I don’t think it’s truth that inflames and condemns, but rather the passion with which it is sometimes delivered. You have the passion, but do you have the truth?

  • JAGGER

    Johnny, I think I have the truth because I do a lot of studying, and search many different mediums. If it is not the truth, and many times I hope that it isn’t, then I challenge you to prove it wrong.

    If everyone would do their own research (its easy today….just google it and read). Sometimes you have to decipher because not everything that comes up in Google is the truth, but by digging deeper, and consider the source, reading their own words, you can ferret out the truth.

    And yes Johnny, the truth does put humans under condemnation……most of us are built that way. We just can’t get away from it.