PITFALLS OF PPACA #2 – THE GRANDFATHERING PROBLEM

(This is the second of a series of commentaries on details of the 2010 health care reform legislation.)

Throughout his election campaign and his subsequent efforts to achieve passage of health care reform, President Obama assured Americans that anyone with existing coverage could keep that coverage. Consistent with the president’s promise, Democratic lawmakers worked to include language guaranteeing continuation of coverage in the reform legislation.

They may have been too successful.

Section 1251 of the Patient Protection and Affordable Care Act provides assurances that nothing in the Act requires that an individual terminate existing coverage, excludes many of the provisions of the Act from applying to existing coverage, and goes on to guarantee that existing coverage can be extended to new employees (in a group plan) and additional family members (if allowed by any plan).

On the one hand, these provisions counter some concerns about reform (at least for those who understand them). On the other hand, the grandfathering of existing coverage undermines much of the intent of other parts of PPACA. Grandfathered plans are exempt from each of the following reform requirements (and others):

(1) Elimination of cost-sharing for preventive care
(2) Elimination of annual limits (individual plans only)
(3) Elimination of preexisting condition exclusions (individual plans only)
(4) Provision to consumers of “plain language” plan information
(5) Availability of a standard appeals process
(6) Limitation on premium variations by age and other factors
(7) Guaranteed availability of coverage
(8) Guaranteed renewal of coverage
(9) Prohibition on discrimination based on health status
(10)Provision of comprehensive health care coverage

In other words, grandfathered plans will be able to continue most of the practices that have angered consumers—and discriminated against those most in need of coverage.

There’s another problem, too. In the small group market—and possibly also in the individual market in some states—the effect of grandfathering may be to reduce the diversity of the insurance exchange risk pools. Insurers will be eager to perpetuate their current plans and avoid most of the new regulatory requirements, while employers with younger and healthier employees will want to retain their prior lower-cost coverage, leaving older and sicker groups to migrate to the exchanges, with regulations and rates more favorable to them. The effect in states currently with high numbers of uninsured—and therefore potentially with the most exchange enrollees—may be minimal, but in others the result may be that premiums are higher for plans available through exchanges than for those outside, while many insurers may decide to focus on their present less-regulated business and simply avoid the exchanges.