With the recently passed health care reform legislation come many changes in employers’ health insurance plans. And that has left employers looking for answers as many of the new mandates go into effect with plan years starting after Sept. 23.
Smart Business spoke with Dale R. Vlasek and John M. Wirtshafter, attorneys at McDonald Hopkins LLC, about the new mandates and how they will affect employers.
Who is grandfathered in under the new health care reform law?
Any health plans that were in place on March 23, 2010, are grandfathered. A plan can stay grandfathered as long as the employer does not implement any changes that cause it to lose such status. Unfortunately, many changes will result in the loss of grandfathered status — for example, changing insurance policies or insurance carriers, eliminating or significantly reducing benefits to diagnose or treat particular conditions, raising co-payments, lowering limits, or raising deductibles or costs of coverage beyond specifically permitted amounts.
Some of the mandated changes are applicable to all plans. However, a grandfathered plan is not subject to a number of the new mandated benefits. Thus, when deciding whether to stay grandfathered, you need to determine whether the expense of staying with your present coverage, as amended for the mandates that are applicable to grandfathered plans, and limiting changes to the permitted changes is economically more beneficial than simply applying all of the mandated changes. This same analysis needs to be applied to all of the different health plans sponsored by the employer.
For the next couple of years, we expect a number of companies will choose to keep their plans grandfathered. But it will be difficult to maintain that status for more than a couple of years. The restrictions on the changes that can be made are so significant that most plans will eventually end up losing that status. In addition, it will be easier for insurance companies to simply incorporate the mandated changes into their policies rather than individually tailor their policies to keep a plan grandfathered.
How can a company determine if it should retain its grandfathered status for now?
A company should seek outside help — whether it is a broker or an attorney who is familiar with the new rules. The benefit of staying grandfathered depends on the specific situation of the employer, plus the manner in which the company provides health benefits to its employees. For example, one of the new rules that is significant for smaller and middle-market companies is that non-grandfathered plans that are fully insured will be subject to the same nondiscrimination tests that were previously only applicable to self-insured medical plans. These nondiscrimination rules will prohibit the plan from discriminating in favor of the highly compensated employees, either in their eligibility to participate or in the benefits provided.
A number of companies currently have more favorable eligibility rules for their executives than they do for other rank and file employees or provide a fully-insured ‘wrap’ program to their executives that provides another layer of benefits above and beyond the benefits provided under the broad-based health insurance program. Under the new act, once the plan is no longer grandfathered, it will be subject to these new rules. If you fail the nondiscrimination rules, the employer is subject to an excise tax of $100 per person per day. Therefore, depending on your situation, you may very well want to remain grandfathered so that you are not subject to this nondiscrimination testing.
Before you give up your grandfathered status by changing your plan, you need to consider whether the price of complying with this rule and others is more costly than staying grandfathered and accepting the higher rates that may apply as a result of not being able to change insurance companies or products.
