Rules for Employers with Grandfather
Exceptions for the Health Care Mandates
The Patient Protection and Affordable Care Act mandates that employers
with health care programs meet certain requirements for employee participation,
coverage limits, and treatment of pre-existing conditions upon enrollment.
Having just spent the past few days studying the grandfather provisions for the
health care reform implementation in 2014, this article is meant to provide a
bit of illumination to any confused employers or their staff. Generally
grandfathered group health care programs will have a calendar year or a fiscal
year plan renewal date. Since this is the time when changes are introduced each
year, if a plan has a June anniversary date, it would have had to apply for
grandfather status by the June 2011 anniversary. Hence the first anniversary of
a grandfathered plan is likely to have occurred by now and this is the time
when a plan administrator may be required to show the plan meets the PPACA
requirements.
What is NOT Affected by the
Grandfather Provision
Provisions which are unaffected by the grandfather provision are
lifetime benefit limits and the rescission rules. Rescission rules allow
insurance companies to retroactively cancel insurance contracts due to fraud. Individual
insurance contracts can have benefit limitations, which can be maintained in the
contracts after January 1, 2014. Insurance companies must now meet certain
standards in order to cancel a contract retroactively; specifically they must
show the individual insured intentionally defrauded the insurance company at
the time of the application.
Grandfathering Election-Opting
Out of the Mandates
In order to opt out of the insurance mandates, employers can elect to
have their current health care plan arrangement remain in force until January
1, 2014, when all plans must comply with the PPACA requirements. However, the grandfather rules are murky and
this article highlights some of the sticking points. The main reasons employers
may choose to keep their current plans in force and wait out the health care
reform implementation are to save money, avoid some of the mandates, and
aversion to change. Unfortunately once
an employer elects to grandfather an existing health care program, there are
strict rules which must be followed, subject to reporting, and audited by the
government. Let’s examine what these
requirements are: disclosure and documentation, phase-in levels for lifetime
benefit limits, measuring benefit parity, assessing increases in employee
copayments, and calculating employee cost sharing increases.
Disclosure and Documentation
Presently under the ERISA rules, employers who have health &
welfare plans are required to provide employees with a Summary Plan Description
of plan benefits, identification of the plan administrator, and other pertinent
contact information. The PPACA expands on these mandates by requiring documentation
of the Patient Protection Provisions such as disclosure of patient rights for
emergency room parity, parity between in-network and out-of-network cost
sharing for certain services, and the ability to self designate a personal
provider for pediatrics or OBGYN without a referral. The insurance company who
has the contract will incorporate these mandates into the annual Summary Plan
Description as it does for all other state and federal requirements.
Calculating Benefit Parity for
Your Plan
To establish benefit parity there are three methods to assess
appropriate levels of plan benefits for non-network services including; contract
payment at in-network levels, payment at Medicare levels, and payment at
out-of-network benefit levels. The rule
states that whichever method provides the highest benefit payment for the
insured is the deciding factor for compliance. There are several ways an
employer sponsored medical plan can meet this mandate, including having the
same benefit level, such as 80% for all essential services. Grandfathered plans
do not have to comply with this provision until 2014.
Phase-In of Lifetime Benefit
Limits
Since September 23, 2010 all new insurance plans must offer an
unlimited lifetime benefit for essential medical insurance services. Essential
services include hospitalization and non-elective doctor’s services among other
things. There is a phase-in provision for existing plans, which must comply
with this schedule for contract limitations for essential benefits:
October 23, 2011-$750,000
October 23, 2012-$1,250,000
October 23, 2013-$2,000,000
Special Enrollee Provision
If you are one of the unfortunate thousands of people who have maxed
out on their insurance contract benefits, you may now enroll on the group
insurance plan via the Health Insurance Portability and Accountability (HIPAA)
rules. Also the group insurance rules do apply to an individual plan if it was
obtained when a group insurance plan was cancelled. The HIPAA rules stipulate
that the individual must have 18 months of creditable coverage from the group
plan in order to be eligible. HIPAA also stipulates the insurance company may
only look-back six months to determine a pre-existing condition and the
exclusion period cannot exceed 12 months for those conditions. And finally, in
order to secure the provision, the individual must not have had a
break-in-coverage longer than 63 days. The previous employer (if this is the
case) must notify the newly eligible special enrollee with a 30 day window for re-enrollment
on the group medical plan. Anyone who has maxed out of the prior contract
benefits must be notified of this right to re-enroll.
Limits on Increasing the
Deductible or Co-payments for Grandfathered Medical Insurance Plans
If your firm has elected to grandfather its health insurance plan, the
ability to increase the plan deductible between 2010 and 2014 is limited to the
CPI or Consumer Price Index plus 5% per year. Co-payment increases are limited to a $5
increase per contract year. And finally,
a decrease in a benefit, such as the emergency room benefit of more than 5% may
disqualify the plan. Anything larger than any of these thresholds is likely to
trigger a disqualification of the grandfathered exception.
Pre-Existing Condition Waiver
Rules
All plans must comply as of January 1, 2014 with removal of any
pre-existing condition clause for enrollees. However, for children, this
restriction was removed as of September 23, 2010.
Transitional Rules for Cost
Sharing
The Accountable Care Act allows the employer to elect to change the
non-fixed cost sharing arrangement in the medical plan without losing its
grandfathering status. Changes made after March 23, 2010 and adopted by June
14, 2010 are OK until the next plan year. The formula for calculating the
acceptable zone for a fixed-amount cost sharing scenario is as follows:
1.
Determine
the CPI based index ($387.14 in 2010)
2.
Add the CPI factor to this base
3.
Convert to a percentage increase
4.
Determine the net allowable increase
5.
Generally a maximum of 15% is an allowable
increase
The easiest way for an employer to avoid this hassle is simply to
change its group insurance plan from a fixed amount cost sharing formula to a
percentage cost sharing formula. In the years when I was in the benefits
brokerage business, all of my clients had a percentage co-payment arrangement
anyway. The government probably had to come up with this formula for certain industries,
a necessary complication I suppose.
Rules to Avoid Disqualification
of a Grandfathered Medical Insurance Program
The rules are fairly straight forward here including:
1.
Benefits may not be reduced below allowable
levels
2.
Essential benefits may not be eliminated
3.
Increases in co-payments may not be increased
beyond the stated level
4.
Employer contributions to the medical plan may
not be reduced beyond the allowable level
5.
Annual benefit limits must comply with the
phase-in schedule
6.
Documentation of plan benefits must comply with
the new rules
7.
Evasion of compliance or overtly attempting to
usurp the standards is not allowed
For What it’s Worth-Professional
Education for Insurance Agents
I spent about three days studying a college level course on the Accountable Care Insurance Mandate Requirements
in order to become familiar enough with the rules to pass a Washington State
approved continuing education course exam for renewal of my insurance
license. Though I no longer sell insurance, I do keep my license current to
competently critique the field. I was actually surprised by the rigor of the
course material, but it should be noted that insurance agents can choose to sit
in seminars where no testing is required to meet the continuing education
edicts or they can opt for less challenging material. Washington State requires 24 hours of
continuing education to renew a life and health (disability) insurance license
every two years. Not all states require this much rigor, but most states have
some education requirement in order for the agent to renew his or her license.
And the good news is, for all of those who hate federal edicts; these
requirements are determined by each state, with an elected insurance
commissioner. The only exception to this is for those representatives who sell
Medicare supplement contracts, who must undergo even more rigorous education
and marketing oversight, which are nationally mandated. The latter is also a
good thing, as the elderly are vulnerable and the Medicare program is paid for
with our tax dollars, so oversight is warranted.
This is the healthpolicymaven signing off, license in hand.
This article may be reprinted with the permission of Roberta E. Winter,
MHA, MPA.
