Overall, the interim regulations issued by HHS, DOL, and the Treasury Department on grandfathered plans in the Affordable Care Act (ACA) appear to strike the right balance between allowing people to “keep the plans they have” while ensuring that people will not be locked into plans that deteriorate significantly over time either in their benefits covered, their cost-sharing requirements, premium contributions from employers, or annual limits on what plans will pay. Moreover, by setting such standards, the regulations allow people to benefit from the consumer protection provisions of the ACA over time.

As Sara Collins, vice president for affordable health insurance at the Commonwealth Fund, notes, many important provisions of the ACA apply to all health plans regardless of grandfathered status including:

• Allowing adult children to stay on or come on to parents policies until age 26;
• Bans against lifetime limits and rescissions;
• Bans against waiting periods of more than 90 days;
• Spending not less than 80 percent of premiums on medical costs (small group and individual markets) or 85 percent in large group employer plans.

Some provisions only apply to employer group grandfathered health plans and exempt grandfathered plans that people purchase on the individual market from provisions such as a ban on pre-existing condition exclusions (this year for children only) and bans against unreasonable annual limits (with unreasonable to be defined in future regulations).

All grandfathered plans are exempt from certain requirements so long as the plans do not significantly lower premium contributions to employees, increase people's cost-sharing requirements, or reduce benefits. Grandfathered plans do not have to offer an essential benefit package in the individual and small group markets and exchanges starting in 2014, eliminate cost sharing for preventive services starting this year, report on quality improvement activities, or guarantee access to emergency, pediatric and ob-gyn services.

Health plans can retain grandfathered status if they make changes that will not reduce the comprehensiveness of a plan. Health plans are free to increase benefits offered, make changes to comply with state or federal regulations, voluntarily adopt other consumer protections of the ACA, and make modest adjustments in benefits, cost-sharing and premiums.

But health plans lose grandfathered status if they significantly cut benefits to diagnose or treat a specific condition , increase co-insurance by any amount, or substantially increase fixed amount cost-sharing, reduce premium contributions, or add or increase annual limits on benefits.

Over the next three years, employers and health plans will weigh options to maintain grandfathered status and keep cost-sharing within the parameters necessary to do so, or relinquish grandfathered status and have greater flexibility to adjust to premium growth. Small employers who face more aggressive growth in premiums are probably more likely to relinquish grandfathered status than large employers.

The gradual movement away from grandfathered status among health plans estimated by the three agencies will be a positive development for consumers and ultimately the overall functioning of the insurance exchanges in 2014. As more plans relinquish their grandfathered status over time, more consumers will benefit from the provisions of the ACA that do not apply to grandfathered plans, particularly the full range of health benefits that the law requires plans to offer in the exchanges and in the individual and small group markets beginning in 2014.

Restricting the ability to maintain grandfathered status over time also means that insurance carriers will be less able to keep grandfathered status for plans that are comprised mainly of healthy people and end grandfathered status for plans with sicker and older people. As a result, premiums in the exchanges might ultimately be lower than they would have been if no restrictions had been placed on grandfathered plan status. By helping to ensure all Americans will ultimately benefit from the new insurance protections, these regulations should serve consumers well.

True to form, Washington has turned recent highly technical rule-making around grandfathered health insurance plans into an opportunity for political point-scoring. Opponents of reform say the new regulations shatter the President's promise to allow happy customers to keep what they have. Supporters characterize the new rules as keeping faith with that promise.

The truth is a little more complex.

Implementing the new law requires striking a balance between steps to ensure that all American consumers receive some basic protections and preserving the stability of the employer market over the short term. Steer too strongly in one direction and employers will just drop coverage rather than meet new standards. Steer too strongly in the other, and employers will have every incentive to maintain coverage but gut the benefits and coverage they offer.

The administration's interim final rule, issued last week, seeks to strike the right balance.

In the short term, the upshot is that those consumer protections that are most popular with the public and least expensive for employers will be extended to all plans, grandfathered or not. The lobbyists for big employers and big insurers may complain that this is a restriction on their 'freedom' to treat enrollees any way they want. But for consumers, it is good news. Every one of the 160 million Americans receiving coverage from their employers will see an end to rescissions, curbs on benefit caps, and the right to keep adult children on their plan until their 26th birthday.

But the big Washington employer lobbies, including Mr. Gelfand of the Chamber of Commerce and Mr. Danner of the National Federation of Independent Business are crying foul. They seem distraught that the proposed rules would restrict an employer's ability to shift more costs to consumers.

Under the rule, grandfathered plans could make routine changes, increase cost sharing by an amount equal to medical inflation every year, and also have a one-time 15% adjustment. If employers demand more than that in cost sharing, restrict coverage of particular conditions, or reduce the share of the premium that they cover by more than 5%, then the plan would lose its grandfathered status and its beneficiaries would be entitled to new rights under the health care law.

The employer lobby insists that these protections would break President Obama's promise to allow Americans to keep the same plan they have now. Only in the "Through the Looking Glass" world of Washington lobbyists could someone possibly argue that being stuck in a insurance plan that doubled its deductible or eliminated coverage for entire diseases like diabetes could be characterized as "keeping the coverage you have."

Many consumer advocates actually hoped for a rule that placed more restrictions on grandfathered plans; a ceiling on yearly premium increases, in particular, would have been helpful for consumers. Requiring grandfathered plans to cover preventive care would also have helped hold down costs.

The big insurance plans and employers should be happy the rule was as responsive as it was to their professed concerns about market stability and stop helping the administration's opponents make political hay out of these common-sense regulations. It is time for all of us to put aside Washington politics and make the new law work for the American people.

If you are a business, especially a small business already struggling to keep up with the costs of providing health insurance to employees, you want to keep the plan you have – you want it to be grandfathered. Grandfathered plans are exempt from some expensive new mandates in the PPACA, such as:

· Mandatory 100% coverage of preventative services with no cost-sharing

· Underwriting limits (health status, pre-ex for children)

· Mandatory cost-sharing limits

· Mandated coverage of clinical trials

· Mandatory reporting requirements

· Network adequacy requirements (access to OBGYNs etc.)

At first glance, employees and consumers might want their plans to be subject to these new rules… but when they see the price tag associated with this, many will balk. There is no free lunch. And under PPACA, the choice is simple – if an employer’s plan loses grandfathered status, either they purchase a more expensive plan, or they stop providing coverage.

So how do you lose grandfathered status? Marilyn summed it up nicely. Basically a plan can only make very limited changes to coverage, is heavily restricted in terms of increasing cost-sharing, and if fully-insured, a plan may not change carriers. This will make it very hard to keep the plan as is.

Proponents will say nonsense like this: “You can keep your plan, it will just have new consumer protections!” or “This is a fair rule that gives lots of flexibility to plans!” Some even say these rules will lower costs.

But the cold, hard truth is simple. If your plan’s new “consumer protections” make it more expensive, you, and your employer, will have even more trouble affording it. If you want to buy a plan with more coverage, you should be free to do that, but this is the government forcing employers either to buy a more expensive plan, or to have no plan.

And you need only open any newspaper to see that “15 percent plus medical inflation” is nowhere near the amount of flexibility small businesses need – rates shoot up 20, 30, even 40 percent for these businesses every year. Remember the famous 39% increases, which revived the comatose health reform debate?

Even the rosy scenarios in the Administration’s own impact assessment paint a clear picture: under this grandfathering regulation, it’s going to be too tough for most plans to continue operating without becoming subject to the expensive new mandates.

The government’s latest rules on grandfathered plans mean small businesses will be left with even less choice and flexibility. Due to these regulations, they will be faced with the difficult choice of paying more to maintain grandfathered coverage, shopping for a new (and more expensive) plan or possibly dropping coverage entirely.

Grandfathered plans are one of the few things consumers have left as a result of this new law. We should leave employers - not the government - in control of changing their existing healthcare plans to what works best for them and their employees. Besides, if the government is so sure these new exchanges will drive innovation, cost control and new choice – then let the market play out. Don’t eliminate options. If exchanges are built right…..consumers should come.

The insinuation that small businesses are heartlessly passing on huge cost increases to their employees is a stretch. When an increase comes, employers often discuss their options and possible changes with their employees. Sometimes they choose to make a modest adjustment, such as increasing a deductible from $30 to $45 – I would hardly call this a ‘drastic change.’ But under the new regulations, this change will mean that their plan no longer qualifies for grandfathered status. When this happens, small business owners and their employees will not be able to keep their current healthcare plan as promised by the Administration. And they will be forced to shop for a new and more expensive plan that is deemed qualified by the government.

These new rules severely restrict the last line of defense for an employer before making the difficult decision of having to employ the nuclear option: dropping coverage all together. This is another heartbreaking and discouraging outcome from this new healthcare law.

It’s unfortunate that yet again, the government needs to manipulate the market in order to achieve the outcome they so desire. Let’s hope small business can weather yet another storm.

If you listened to the campaign rhetoric during the 2008 election you could be forgiven for thinking that health reform would mainly mean insuring people who cannot afford insurance on their own; in the process there would be no tax increases or benefit cuts for the middle class; and, “If you like the plan you are in, you can keep it!”

Turns out, the reality is very different. Take, for example, health plans that were supposed to be “grandfathered,” and thus immune from onerous, cost-increasing regulatory burdens. A draft of the proposed regulations shows the news isn’t good. Under a “mid-range” estimate, more than half of all workers will not be in grandfathered plans within three years. Under the worst case scenario, the number will be two-thirds.

Here is the full table:

Percent of Employees Who Will
Not Be In Grandfathered Plans
2013

Best Case

Small Employers 49%

Large Employers 34%

Total 39%

Mid-Range Estimate

Small Employers 66%

Large Employers 45%

Total 51%

Worst Case

Small Employers 80%

Large Employers 64%

Total 69%

Notes: Represents full-time employees.

Small Employers = 3 to 99 employees; Large Employers = 100+ employees.

Table source: Department of Health and Human Services

Under the most likely scenario, 87 million Americans will no longer be able to retain the health plan they have and the number could be as high as 117 million. Small businesses will be especially hard hit. As many as 80% will lose their grandfather status, for example. One reason: any change of insurers (say, to take advantage of lower premiums) will cause a loss of such status. By contrast, a self-insured union plan is free to change its third-party administrator and still keep its grandfather status.

Also, it now appears that “grandfathering” was never intended to be a long-term phenomenon. Eventually, all firms will lose their grandfather status.

Moreover, as I wrote in The Wall Street Journal the other day, even if you are in a grandfathered plan, your employer could drop your coverage anyway. As we previously reported here, the number of workers who will lose their employer-provided insurance is estimated at 9 million to 10 million by the Congressional Budget Office (CBO), 14 million by the Medicare Chief Actuary and 35 million by former CBO Director Douglas Holtz-Eakin.

When writing the health care reform law, known as the Affordable Care Act, we made sure reform would bring stability, affordability and consumer protections to the health insurance system for American workers and their families. Many of the consumer benefits in this new law have already gone into effect, and over the coming months, many more will be implemented. The specifics of one important provision, the promise that “if you like the plan you have, you can keep it,” were recently detailed in a regulation issued by the Departments of Health and Human Services, Treasury and Labor.

That regulation makes clear that individuals and families will be able to keep their existing plans if they like them and it spells out the important protections consumers will benefit from under the law. This regulation is also important because it provides flexibility to permit employers who offer quality insurance to make routine changes while still continuing to offer the same coverage to employees. And it protects employees by discouraging employers from using health reform as an excuse to cut their benefits or increase their cost sharing. Unfortunately, some want to use this and other announcements to make false claims about health reform.

The “grandfathering” regulations include important and popular consumer protections. Those who oppose the rule are also opposing these important protections for all consumers, including rules that ban lifetime limits on health coverage, rules barring rescissions of coverage when people get sick and have previously made an unintentional mistake on their application, and the extension of parents’ coverage to young adults under 26 years old. Those who oppose this new rule are also opposing rules that require insurance companies to provide coverage for children with pre-existing conditions and rules preventing restricted annual dollar-amount limits on coverage for the vast majority of Americans who get their health insurance through employers, irrespective of whether their plan is grandfathered.

The truth is the rule allows employers to make routine changes in health plans and maintain their status, including adjustments in cost that keep pace with medical inflation, while making sure employees have the same quality health insurance they are used to. Employers will also be able to add benefits and consumer protections, make modest adjustments to existing benefits, or make other changes to comply with state or federal laws. Even premium changes are not taken into account when determining a plan’s “grandfathered” status. What the regulation is designed to do is prevent employers from using health reform as an excuse to significantly reduce health benefits or raise cost sharing for employees and their families. Some examples of the types of significant changes employers will NOT be allowed to make are: ending coverage of chronic conditions like diabetes; raising co-payments, co-insurance, or deductibles for patients when they see a health care provider more than 15 percentage points above the rate of medical inflation; significantly decreasing the employer contribution to employees’ health insurance premiums; or adding or significantly increasing an annual limit on how much coverage an individual could get if he or she becomes very sick and needs significant coverage.

This rule strikes the right balance between protecting consumers and offering the flexibility employers need. As we work in the coming months and years to implement more of health reform’s provisions, we will continue to ensure that the focus of health insurance remains where it belongs – on consumers.