Center on Budget & Policy Priorities Issues Public Comment on Employee Benefits Security Administration Proposed Rule

WASHINGTON, Aug. 20 -- Sarah Lueck, senior policy analyst at the Center on Budget and Policy Priorities, has issued a public comment on the Employee Benefits Security Administration's proposed rule entitled "Grandfathered Group Health Plans and Grandfathered Group Health Insurance Coverage". The comment was written on Aug. 14, 2020, and posted on Aug. 17, 2020:

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The Center on Budget and Policy Priorities is a nonpartisan research and policy organization based in Washington, D.C. Founded in 1981, the Center conducts research and analysis to inform public debates and policymakers about a range of budget, tax and programmatic issues affecting individuals and families with low or moderate incomes. Thank you for the opportunity to comment on the grandfathered group health plans and group health insurance coverage proposed rule.

The purpose of the grandfathering provision in the Affordable Care Act (ACA) was to exempt health plans that were in place when the ACA was enacted in March 2010 from some ACA standards and consumer protections. Federal rulemaking by the Departments was designed to ensure that when grandfathered plans change significantly - particularly in ways that impact consumers' costs and coverage - the plans would cease to be considered grandfathered plans and would become subject to ACA standards just like any other plan. This approach struck a sensible balance: it avoided unnecessary disruption of people's health coverage but also created the expectation that grandfathered health plans would phase out gradually over time (particularly in the small-group market, where health plan changes occur more frequently), thus allowing more people to benefit from ACA protections.

Under the proposed rule, it would be easier for grandfathered group health plans and group health insurance coverage to maintain grandfathered status even if their deductibles and certain other fixed cost-sharing charges increase significantly for workers and their families. (Specifically, the rule proposes that fixed-amount copayments, deductibles and out-of-pocket limits could be three percentage points higher in 2026 for grandfathered group plans than would be permitted under current rules and also that high-deductible health plans could raise cost-sharing charges in order to qualify for use with a health savings account.) This raises two major concerns. First, some people with employer-sponsored health benefits will continue to miss out on important ACA consumer protections that were enacted a decade ago. Second, the continued availability of grandfathered plans may segment the small-group market, raising the risk of adverse selection and premiums that are higher for small businesses that offer (or want to offer) ACA-compliant plans.

Grandfathered Group Plans: Implications for Employees and Insurance Markets

The Departments are right to identify that the statutory authority does not exist to grant grandfathered status to non-grandfathered plans or to permit grandfathered plans to be sold to new consumers in the individual market. However, we are concerned about the impact that making it easier for group plans to maintain grandfathered status would have on individuals and families offered such plans.

Some group health sponsors and plan issuers are likely choosing to preserve their grandfathered status to avoid adhering to some ACA requirements. For the employees enrolling in or offered such plans, this may mean not having access to:

* Preventive services covered with no patient cost-sharing;

* The right to appeal insurers' claims denials to a third-party reviewer;

* No greater out-of-pocket costs (compared to in-network benefits) for patients who need out-of-network care in an emergency;

* An annual limit on how much plan enrollees must pay each year in deductibles and other out-of-pocket costs under the plan; and

* Coverage of the essential health benefits (which the ACA applied to small-group plans)./1

Though grandfathered plans are dwindling, they were still present at one out of every five firms that offered health benefits in 2019, and 13% of covered workers were enrolled in a grandfathered plan that year, according to a Kaiser Family Foundation survey./2

Based on this, the Departments estimate that 17.5 million people are in ERISA-covered grandfathered plans and that 5.6 million people are in grandfathered plans offered by state and local governments. It is difficult to know whether grandfathered plan enrollees are actively choosing to remain in such plans, whether they typically have other non-grandfathered options that they could select, whether they even know a plan is grandfathered, and whether they understand what might be missing when they enroll in grandfathered coverage. The Kaiser report says that employers participating in the survey, particularly smaller firms, had difficulty with or were confused by the term "grandfathered." This suggests that employees also may be confused or have difficulty with the term. And in those cases when an employer offers only a grandfathered health plan, employees and their family members who want health coverage may have little option but to enroll in it. Otherwise, they would have to forgo any contribution the employer makes towards group premiums and likely would have to pay the full cost if they opt for coverage in an individual-market plan.

Making it easier for small-group health plans to preserve their grandfathered status raises additional concerns. Because the small-group market is subject to modified community rating and a "single risk pool," firms with younger or healthier than average employees have incentives to find ways to opt out, at the expense of other firms that then face higher premiums. Indeed, research has shown that premiums and medical claims costs in the small-group market are higher for ACA-compliant plans than for non-compliant plans, though the difference is less than in the individual market./3

In addition, the ACA's changes to plan standards in the small-group market (such as requiring essential health benefits) were more significant than in the large group market, meaning that employees at small businesses have more to lose when employers sidestep these reforms.

Small employers with younger and healthier workers may have other avenues to avoid the ACA small-group market. But further extending grandfathered status would only contribute to market segmentation that could harm the ACA-compliant small-group market. In contrast, channeling younger and healthier groups into the insurance markets that have traditionally served them would serve to bolster stability in those markets.

Conclusion

In light of the natural decline of grandfathered group plans that has already occurred, their exemption from important consumer protections, and the potential adverse selection risk they pose, the Departments should avoid making it easier for group plans to maintain grandfathered status. To ensure as little disruption as possible, the Departments should work to strengthen ACA-compliant plans and focus on provisions that would allow more people to afford comprehensive coverage.

We also urge the Departments to strengthen federal monitoring and oversight of grandfathered plans, to improve the information that is available about these plans and their impact. In particular, we recommend that the Departments examine whether consumers are receiving adequate information about the grandfathered status of their plans (including whether existing notices are communicating needed information), whether employers need better information about whether the plans they offer are grandfathered (and what the implications of that are), and whether plans and coverage that claim grandfathered status have actually met the existing regulatory requirements necessary to maintain that status.

Sincerely,

Sarah Lueck, Senior Policy Analyst

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Footnotes:

1/ Larry Levitt, "Grandfathering Explained," Kaiser Family Foundation, September 8, 2011, https://www.kff.org/healthreform/perspective/grandfathering-explained/ and "Grandfathered Plans under the Patient Protection and Affordable Care Act," Families USA, December 2010. https://familiesusa.org/sites/default/files/product_documents/Grandfathered-Plans.pdf

2/ 2019 Employer Health Benefits Survey, Kaiser Family Foundation, September 25, 2019. https://www.kff.org/healthcosts/report/2019-employer-health-benefits-survey/

3/ Mark A. Hall and Michael J. McCue, "How Do Noncompliant Health Plans Affect the Market?" The Commonwealth Fund, November 15, 2017. https://www.commonwealthfund.org/blog/2017/how-do-noncompliant-health-plansaffect-market

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The proposed rule can be viewed at: https://beta.regulations.gov/document/EBSA-2020-0006-0001

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