Decision Time for Company Health Care Plans: To Grandfather or Not to Grandfather?

Sep 22, 2010

By Sheri Alexander, Senior Vice President, Gregory & Appel
(As seen on InsideEdge and

Keeping up with the latest legislation can be overwhelming; the health care reform bill is more than 2,000 pages long, with an estimated 200,000 pages of additional amendments and definitions of intent still to come. The first official date of regulatory change is September 23, 2010.

What's Changing?
While not an exhaustive list, the initial regulatory changes may cause an increase in your health care costs (up to a 3-5% increase). As of September 23, a health care plan being renewed must:

  • Cover the Big Kids
    Coverage must be provided for dependents up to age 26. This includes married children if the dependent isn't eligible for other employer-sponsored health coverage. If you lose your grandfathered status, you need to allow coverage for those who are eligible for other employer-sponsored health coverage.
  • Lift the Ceiling
    There will no longer be lifetime limits on essential health care benefits. Annual limits are permissible but tricky. All essential benefits must be covered, including high-priced benefits.

Decision Time: To Grandfather or Not to Grandfather?
As an employer, you have the option to grandfather existing health care plans as long as you still comply with the regulations mentioned above. Grandfathering a plan isn't a permanent action either, as such grandfathered status will expire by January 1, 2014.

To Grandfather?
In order for a group health plan to qualify for grandfathered status, it must have been in effect on March 23, 2010 and have covered at least one person continuously since that time. Keeping your current health care plan grandfathered is likely the least disruptive option for employees. Grandfathered plans would also be exempt from regulations dealing with preventative health services and mandated patient protections (explained further below).

So, what's the downside? Making adjustments to a grandfathered health plan is not easy. Changing any of the following could result in the loss of grandfathered status:

  • Eliminating Benefits
  • Increasing Percentage or Fixed Amount Cost Sharing Requirements
  • Increasing Copayments
  • Decreasing Employer Contribution Limits
  • Changing Annual Limits
  • Changing Fully Insured Carriers

Not to Grandfather?
Why would you choose not to grandfather your health care plan? Many employers will simply be unable to afford upcoming rate increases without changing plan design or contributions. While businesses who forego grandfathered status will preserve flexibility in plan design and contribution strategy, they must also comply with additional new regulations, including:

  • Mandated Coverage for Preventive Health Services
    Plans must provide full coverage without any cost sharing (e.g. copay, deductible, coinsurance) for preventative care services, immunizations, and screenings for infants, adolescents, and women.
  • Mandated Patient Protections
    Participants may designate an in-network primary care provider of their choice. They can use emergency room (ER) services without pre-authorization, and ER benefits must be paid at in-network levels — so a trip to the ER while on vacation costs the same as if you were at home.

Making Informed Decisions
Going forward, it's increasingly important to evaluate your health care plan and employee claims. Simple cost-shaving solutions of the past — like higher copays, deductibles, and maximum out-of-pocket costs — will be restricted under new regulations. Additionally, employers will need to be smarter about the effectiveness of their wellness programs.

Talk to your insurance broker about your health care plan options. A professional can analyze the numbers, examine potential gains or losses, and determine the best steps for your company. Health care reform will have financial implications whether or not a plan is grandfathered, but efficient planning can help control your costs.