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Employers who offer health coverage have many new requirements to understand related to the recently passed Affordable Care Act. Most of the major changes do not become effective until January 1, 2014 particularly given the "grandfathered" status. However, maintaining this status may be more diffic... Read More..


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Page:   of 16 
  

Health Reform, Is Your Company's Plan Grandfathered? Be careful.

ReadyConsultant - - 07/07/2010

Employers who offer health coverage have many new requirements to understand related to the recently passed Affordable Care Act.  Most of the major changes do not become effective until January 1, 2014 particularly given the "grandfathered" status.  However, maintaining this status may be more difficult and costly than most realize.  Losing the grandfathered status could make the new reform rules effective as early as September 23, 2010.

Reviewing a white paper titled "Understanding Grandfathered Health Plan Status: A Guide for Employers and Human Resource Professionals" brings some clarity to this complex issues (attached).


There are many requirements that become effective January 1, 2014 related to the "Patient Protection and Affordable Care Act" and the "Health Care and Education Reconciliation Act".  This may sound like you have time to digest and prepare for these new requirements but there are a myriad of ways that an employer may forfeit this time frame.  Most notably is the traditional management and design of health care benefit plans.

The attached white paper goes into great detail (17 pages) about many of these issues.  What became very clear is benefit design decisions just became vastly more complex and the employer's negotiating leverage with health plans may have been severely impacted.  An employer will now be faced with increasingly difficult decisions:

  1. Continue to offer coverage but be restricted to only limited changes.  On the surface this sounds like it may become a real financial challenge.
  2. Drop coverage
  3. Give up the "grandfathered" status and become subject to the Affordable Care Act's requirements.

Obviously this will have a dramatic impact on the typically annual process of an employer reviewing health benefits and making changes to absorb the budget impact.  The white paper's conclusion points out a startling statistic: 

"approximately 66% of small employers and 48% of large employers made a change in either cost sharing or premium contribution during 2009 that would require them to relinquish grandfathered status if the same change were made in 2011"

How is that possible?  Here are some highlights:

  • Changes in coinsurance: no changes allowed... "any increase in a percentage cost-sharing requirement (such as coinsurance)..."
  • Co-payment and other fixed-amount cost-sharing:  Get your calculators out.  You'll need to compare your change to the maximum percentage increase permitted as defined in the Act.
  • Employer's contribution rate:  this cannot change "by more than 5% below the contribution rate on March 23, 2010"

Even mergers and acquisitions need to take notice.  There are "anti-abose" provisions that will disqualify grandfathered plans if the restructuring is determined to have been done for the purpose of covering new individuals under a grandfathered plan.

The conclusion points out that two thirds of the employers mentioned above could have maintained grandfathered status and achieved the same cost-control objectives if they had approached it differently.  While this provides some hope, these issues will certainly make for interesting benefit discussions between employers, benefit consultants, health plans and ultimately employees.


White paper author:

Denise E. Williamson, SPHR
Director of Operations and Chief FInancial Officer
Western Center on Law & Poverty

Understanding Grandfathered Health Plan Status: A Guide for Employers and Human Resources Professionals


Registration required to download the white paper.  Registration is Free.

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Legal Assistant
Created by Anita in 7/7/2010 12:10:36 PM
I found the paper Understanding Grandfathered Health Plan Status to be informative and well written. Being a novice, I didn't even know what the term "grandfathered" meant until I read this paper. It explained step-by-step what to expect when dealing with the changes in health care plans, gave examples, and was an easy read. After reading it, I feel much more confident about what the changes in health care mean to the company I work for, and how they effect my current health insurance! Thanks!

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