The Department of Health and Human Services has issued its regulations defining what health plans may be “grandfathered” under reform, along with estimates of the percentage of plans likely to be affected.
The regulations will surprise those who took a broad interpretation of President Obama’s promise that anyone who likes their current plan can keep it. While the new regs don’t contradict the president’s promise, they do reflect a narrow reading of it. Changes that would result in a plan being no longer grandfathered (and therefore subject to all the provisions of reform) include:
· Reductions in benefits
· “Significant” increases in co-payments
· Any percentage increase in coinsurance
· “Significant” increases in deductibles
· “Significant” reductions in employer contributions
· Reductions in annual payment caps
· Changes in insurance companies (excluding self-funded administration)
However, it appears that any increases in coverage would not trigger exclusion from grandfathering.
The effect of the new regs will vary according to the size of plan. HHS estimates that large group plans (with over 100 employees) will see fewest changes to their grandfathered status, since these are the most stable types of plan, with more than 80 percent still grandfathered in 2011, and more than half still grandfathered in 2013, immediately prior to the establishment of insurance exchanges and most other reform provisions. HHS also estimates that smaller group plans will see a much faster move out of their grandfathered status as they attempt to control costs by tightening benefits; 70 percent are projected to be grandfathered in 2011, but only a third will retain their grandfathered status by 2013. Individuals will be most impacted by the new regs: because of their typical plan “churn,” almost all will switch from a grandfathered plan over the next three years.
HHS cautions that the estimates will depend on medical inflation and other factors; higher medical costs will likely cause more employers to seek to cut benefits and therefore lose their plan grandfathering. It is also possible—but not considered by HHS—that insurers will make extra efforts to minimize benefit changes in order to avoid what they may perceive as the more intrusive aspects of reform.
A very rough guess—since the HHS estimates reflect numbers of plans rather than numbers of insureds—is that three-quarters of those currently covered will be in grandfathered plans in 2011, but only around half will still be grandfathered in 2013.