Why are ‘grandfathered plans’ an issue for plan sponsors?
The legislation includes ‘grandfathered’ provisions that are designed to enable existing health plans to operate on a status quo basis for a period of time. Only certain provisions of the legislation are eligible for grandfathering and only for a defined period of time, after which the provision must be fully implemented. The plan sponsor must also be aware that a plan can lose its grandfathered status under certain circumstances, including elimination of benefits, increase in percentage of cost-sharing (coinsurance/copayment) requirements, increase in deductibles, decrease in employer contribution toward the cost of coverage by more than a certain percentage, and change in annual limits.
What is the expected cost impact?
This is a critical consideration for every employer, plan sponsor and/or insurer. Early projected cost implications of health care reform legislation range from less than 0.1 to 4.0 percent per health care provision. These estimates are in addition to health care cost trends, utilization patterns and demographics and state legislative mandates for insured plans. Some of the requirements will have minimal or no health care cost impact, but will add administrative burden to the plan.
Why should an employer continue to offer health care coverage?
The legislation anticipated this reaction and included consequences for employers who drop coverage for their work force. Beginning in 2014, the federal government will impose a $2,000 per employee penalty for employers who drop coverage. This penalty amount is likely to change before 2014 since it is disproportionate to the actual cost of coverage.
Other provisions of the legislation provide for subsidized premium assistance and free-choice vouchers that employers must provide to qualified employees who elect to purchase health care through the health exchanges, which are being developed to provide all individuals with mandated essential health care coverage, rather than participate in the employer-provided health plan. Employer-sponsored programs that lose employee participation to the voucher system will also lose the tax deductibility of the benefit.
With such wide-ranging implications, where does an employer begin?
A critical first step is to understand the legislation’s multi-faceted implementation schedule. With the legislation’s removal of the plan sponsor’s ability to control corporate costs through plan design and contribution structure, introducing health improvement initiatives also becomes essential. And, you need to keep the lines of communication open with your work force. Health care benefits remain a priority for the majority of employees, and replacing rumor and myth with facts is vital.
Sharon Blichfeldt is a vice president and senior health and benefits account executive in the Pittsburgh office of Aon Risk Services Central, Inc. Reach her at (412) 263-6532 or [email protected].
