Businesses must weigh grandfathered status, costsBusinesses must weigh grandfathered status costs

July 25, 2010
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Can you really keep the health benefits plan you already have, under federal health care reform?

Maybe — at a price, say some health insurance and business professionals.

But pressures on premium prices may be just too much to keep grandfathered health plans alive as businesses face the first major changes under federal health care reform, according to local benefits experts.

“Personally, I believe the benefits of being a grandfathered plan are pretty minimal, especially in comparison to the trend increases still running at 10 to 12 percent on top of any experience,” said Scott Lyon, vice president of small business services for the Small Business Association of Michigan.

And as everyone waits for the federal Health and Human Services Administration to issue guidance on what constitutes “essential benefits,” it is still unclear whether health plans will even continue to offer the same packages as the previous year, Lyon said.

The date for the first big batch of health plan renewals affected by Affordable Care Act provisions is Oct. 1, he said, giving less than three months for the small group market to prepare. Even more plan renewals occur Jan. 1. The provisions affect new individual, group, self-insured and negotiated plans and renewals as of Sept. 23.

The HHS estimates that 70 percent of small group plans, which cover 43 million Americans, will have grandfathered status for 2011. But 49 percent to 80 percent could lose the status by 2013, according to Blue Cross Blue Shield of Michigan.

The federal agency said it expects about 75 percent of large-employer plans, those covering 100 or more workers and often self-insured, will have grandfathered status next year. Some 133 million people are covered through large companies.

The individual market is expected to lose grandfathered status quickly, the HHS said, because of the turnover rate of 40 percent to 66 percent annually. Individual policies cover 17 million.

Priority Health Associate Vice President of Communications Rob Pocock said customers of the health plan, primarily small businesses, should look carefully at grandfathering health benefits.

“But we really feel strongly that employers shouldn’t fear losing grandfathered status,” Pocock said.

“Every employer needs to look at his or her own circumstances, but the benefits are relatively minimal compared to the choice that it takes away from employers. In order to remain in a grandfathered plan, you would not be able to change your benefits or competitively shop their plan. It just stifles innovation.”

Priority Health, one of the major health insurers in West Michigan, is launching a website that includes calculators for grandfathered status and the small business tax credit. Find it at www.understandinghealthreform.com

There are about a half-dozen advantages for business to grandfathered status, said Norbert Kugele, a partner specializing in benefits law at Warner Norcross and Judd. Among them: continuing better benefits for highly compensated employees; avoiding in-network benefit levels for out-of-network emergency services; and avoiding the requirement to eliminate caps and out-of-pocket costs for preventative services.

All plans, grandfathered or not, fully insured or self-insured, individual or group, must comply with a list of requirements at the first renewal date following Sept. 23 (see related story). Plans under collective bargaining agreements face their own due dates based on contracts.

Changes that will trigger the loss of grandfathered status include: significant cuts or benefit reductions; any hike in co-insurance or significant hikes in co-pays and deductibles; significant reductions in employer contributions; additional or more restrictive annual limits; and changing insurance companies.

“It is almost illogical to assume a small group can remain in a grandfathered plan,” said James L. Gilbert, president of Creative Benefit Systems Inc. and a past president of the West Michigan Association of Health Underwriters. “Changes are necessary on a regular basis to keep plans affordable and up to date. In the small group market, that requires changes every couple of years.”

The reality is that few small businesses in Michigan will be able to continue to afford premiums unless they are able to make more drastic changes, said Laura Miller, owner of Custom Benefit Services.

“For the small business, I think that the cost factor is going to force them to lose grandfathered status,” Miller said. “They’ll have to make changes in order to stay in business by 2014.”

Gilbert said some of his small business customers already have benefits changes underway that will erase grandfathered status.

“There will not be much value to them to take the extra effort to remain grandfathered in the small group market. I don’t think too many employers are going to go out of their way toward keeping a grandfathered plan. It just would not make sense in the long run,” Gilbert said.

Kugele said that does not appear to be coincidence.

“It’s clear that the position that Health and Human Services and other agencies have taken is that grandfathering ought to be a temporary thing,” he said. “These rules really are designed to push people out of grandfathered status sooner rather than later.”

Lyon said SBAM is trying to educate small business owners and agents that sell its plan to its members.

“It’s a case-by-case basis,” he said. “They’re going to have to make a decision with their advisors on where they are going to go with this thing.”

Regulations include provisions to prevent abuses of grandfathered plans to avoid implementing new requirements.

“Maybe losing grandfathered status isn’t that big of a deal. There’s plenty of requirements that you have to comply with anyway,” Kugele said.

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