Employer Rules for PPACA Grandfathered Health Care Plans

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.