HHS: Insurers Can Tweak Plans Without Jeopardizing Grandfathered Status

The U.S. Department of Health and Human Services issued another in its series of new rules under the health care reforms, this one regulating how health insurers can change plans while still maintaining their grandfathered protections.

The Patient Protection and Affordable Care Act demands a number of significant changes to health plans. But plans that were already established on or before March 23 of this year will have fewer requirements for changes, receiving protection under this grandfather clause. Insurers will still be allowed to make some limited modifications to the plans. If they "make significant changes that reduce benefits or increase costs to consumers," the status will be nullified, according to HHS.

"Grandfathered health plans will be able to make routine changes to their policies and maintain their status," according to the agency's announcement. "These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with state or other federal laws." And to answer another central question: "Premium changes are not taken into account when determining whether or not a plan is grandfathered."

HHS did offer a few examples for what might constitute a significant enough change to lose grandfathered status: raising the insured's share of hospital expense by 25%; removing coverage for a major disease, such as diabetes or cystic fibrosis; raising a co-payment significantly, such as by two-thirds over two years; boosting the deductible, such as by 50% over two years; lowering employer contributions by more than 5%; or putting any new limits on annual coverage amounts.

If plans lose the grandfathered designation, their new coverage would have to include recommended prevention services -- without cost-sharing -- and access to such medical professional as OB-GYNs and pediatricians without referral by a primary care provider. And whether they are grandfathered or new, all plan years starting after Sept. 22 must do away with lifetime coverage limits and rescissions of policies for customers who get sick or who made accidental errors on insurance forms. Also, plans that include dependent coverage must extend it to adult dependents up to age 26. The documentation for the rule is lengthy and complicated, said Robert Zirkelbach, spokesman for America's Health Insurance Plans, so his organization is "still looking at it." He said AHIP's central concern is to "minimize disruption" to existing plans, which was a "key promise of health care reform." "That's the prism through which we're looking at this," he said, but the organization isn't ready yet to take a position on how this will affect its members.

Jessica Waltman, senior vice president of policy and government affairs at the National Association of Health Underwriters, said the group is concerned it's overly restrictive and will cause more than half of Americans to lose their grandfathered status. Waltman said NAHU intends to provide some response during the comment window. "Obviously, there was the oft-repeated promise that if you like what you have, you would be able to keep it." She said her organization appreciates that some compliance transition time had been given to plans starting between the enactment of the law and the release of this new rule, but she said that leaves out the companies, insurers and individuals who have agreed on plans starting July 1, in just two weeks. "To go back and change all of that will be a huge burden," she said. "That's pretty rough on employers."

About 133 million people in America are covered under employee-sponsored plans. Those people will likely notice little difference in their plans, according to HHS, which estimated that more than three quarters of existing plans will remain grandfathered in 2011. Even by 2014, when the states open up their health insurance exchanges, the federal agency assumes that most employer plans will still retain the protected status.

Of course, the same doesn't go for the very different individual market. "Change is likely to come more swiftly in the individual market because up to two-thirds of individual policyholders switch coverage in a given year so that policies are likely to lose their grandfathered status and consumers will gain new protections more quickly," according to an HHS information sheet. "But this is a market that would experience rapid change even without the grandfathering regulation of health insurance reform.

As it is, the grandfathering rule is "interim final," meaning that the industry can still send comments and requests to the Obama administration for two months, hoping for modifications. HHS has taken the lead in implementing the health reform laws, but this particular rule is also enforced by the departments of Labor and the Treasury. The states will also have some additional authority to enforce it.

(Jesse A. Hamilton, Washington bureau manager: [email protected])