The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Those Pesky Obamacare Grandfather Regs and Why We’re All Doomed

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


Certainly the latest news about Obamacare is how millions of people across the country are losing their health insurance in spite of numerous assurances by President Obama over a period of four-plus years that, “if you like your health-care plan, you will be able to keep your health-care plan, period.”  In other words, he was promising all Americans that the health plan they liked and could afford would be “grandfathered” thus avoiding many of Obamacare’s requirements.

Now, scrambling to protect himself from criticism, the president is actually claiming he didn’t really say what we all thought he said.  In a speech before Organizing for Action, his campaign organization turned advocacy group for all things Obama, the president said, “Now, if you have or had one of these plans before the Affordable Care Act came into law and you really like that plan, what we said was you could keep it, if it hasn’t changed since the law was passed.”

Certainly the Washington Post believes the president mislead the American people because the administration knew full well what the regulations required.  As a result, the Post "Fact Checker" gave the president four Pinocchios, the worst possible score.  In fact, the regulations released by his administrations on June 17, 2010, and an amended rule on November 17, laid out what makes a plan “grandfathered,” what changes that can be made to a health plan that can “de-grandfather” it, and how many plans they thought would be terminated.

Here’s what the administration said about people losing their health plans in the June 17 Federal Register on page 34553:

While a substantial fraction of individual policies are in force for less than one year, a small group of individuals maintain their policies over longer time periods.  One study found that 17 percent of individuals maintained their policies for more than two years, while another found that nearly 30 percent maintained policies for more than three years.  Using these turnover estimates, a reasonable range for the percentage of individual policies that would terminate, and therefore relinquish their grandfather status, is 40 percent to 67 percent. These estimates assume that the policies that terminate are replaced by new individual policies, and that these new policies are not, by definition, grandfathered.  In addition, the coverage that some individuals maintain for long periods might lose its grandfather status because the cost-sharing parameters in policies change by more than the limits specified in these interim final regulations.  The frequency of this outcome cannot be gauged due to lack of data, but as a result of it, the Departments estimate that the percentage of individual market policies losing grandfather status in a given year exceeds the 40 percent to 67 percent range that is estimated based on the fraction of individual policies that turn over from one year to the next.

Considering the breadth of demands the Obamacare law require health plans to follow and how minor changes can force a plan to become “un-grandfathered,” the insurance companies had no choice but to drop millions of health plans that Americans liked and could afford.

Here is a breakdown of some information that was put together by Cigna Corporation on what constitutes a grandfathered plan and how a plan can lose that status.  The March 23, 2010 date is significant because that is when the Affordable Care Act or Obamacare was signed into law by the president.  So what a health plan looked like and covered before or on that day is the baseline from which  changes or its grandfather status is determined.

Grandfathered Plan:

  • Grandfathering refers to group or individual health insurance coverage in which an individual was enrolled on March 23, 2010.
  •  Grandfathered plan rules apply separately to each benefit package made available under a group health plan.
  • Grandfathered status applies to all plans, including Employee Retirement Income Security Act (ERISA) and non-ERISA plans, regardless of their funding type (such as an Administrative Services Only, which is also called an employer self-funded plan or a fully insured plan).
  • The Obamacare interim final regulations describe administrative requirements (e.g., disclosure to consumers and recordkeeping responsibilities) for a plan to maintain its grandfathered status.
  • Fully insured health plans subject to collective bargaining agreements can maintain their grandfathered status until the final collective bargaining agreement in effect on March 23, 2010 terminates.  After that point, they will lose their grandfathered status if they make changes (describe below.)
  • Retiree-only, stand-alone dental, long-term care insurance and Medigap plans generally are exempt from the PPACA insurance reforms

Here is what can change an individual or a company’s plan from being grandfathered, again based on some examples provided by Cigna:

Change

Example of a Change

Significantly cut or reduce benefits
Remove a benefit that treats or is used to diagnose conditions like cystic fibrosis, diabetes, HIV/AIDS, etc. or removing coverage for a condition that was previously covered

Raise coinsurance charges -- increasing the amount a patient must pay.
Changing a plan coinsurance level from 90% in-network/70% out-of-network to 80% in-network/60% out-of-network

Significantly raise copay charges (Copays cannot be increased by more than the greater of $5 – adjusted annually for medical inflation or a percent equal to medical inflation plus 15%.)
Changing a primary-care physician copay from $5 to $20.

Significantly raise deductibles or out-of-pocket maximums (An individual and/or family deductible or out-of-pocket maximum cannot be increased by more than a percent equal to medical inflation plus 15%)
Changing an individual deductible from $500 to $1,000.

Add or tighten an annual limit
This means a plan or policy cannot add a new plan level or benefit level annual dollar limit unless it replaces an existing lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit, nor can a plan or policy reduce the annual dollar limit.

Lowering employer contributions
Employers cannot reduce their contribution rate or change a contribution formula that would cause their contribution to an employee’s healthcare plan to be reduced by more than 5% compared to their contribution rate on 3/23/2010.  As an example, if a premium costs $200 and the employer pays 50% ($100), the employer must continue to pay 45% or more of the premium costs to remain grandfathered.

Restructure of company
If an employer restructures the company through a merger, acquisition or similar business structuring if the principal purpose of the action is to cover new employees under a grandfathered plan.

Avik Roy of Forbe’s “The Apothecary” points out in a recent blog that it’s not just individual policies that are going to be affected by Obamacare regulations.  The administration also predicted that small employer plans and large employer plans will also be forced to change what they give their employees.  Based on history on how often employers changed their employees’ health plans, the administration stated on page 34552 concerning the grandfathering regulation the following:

Under this assumption, the Departments’ mid-range estimate is that 66 percent of small employer plans and 45 percent of large employer plans will relinquish their grandfather status by the end of 2013. The low-end estimates are for 49 percent and 34 percent of small and large employer plans, respectively, to have relinquished grandfather status, and the high-end estimates are 80 percent and 64 percent, respectively.

Based on the mid-range estimates, Avik Roy stated that 51 percent of employer-based health plans could be discontinued and “53.5 percent of the non-group market (the middle of the administration’s range) amounts to 93 million Americans.”

Considering there are about 317 million Americans, that means it’s likely 29.3 % of the population will lose their health plan.

ALL health plans that are not grandfathered as of Jan 1, 2014 have to include the essential benefits package, such as maternity and newborn care, mental health coverage, pediatric services, and vision care among others, even if you do not want the benefit.  So a 60 year old woman or a 28 year old single man must pay for maternity care, although it is highly doubtful either will be having a baby soon.  It is these types of benefits that are really raising the costs for everyone.

If you are one of the unfortunate ones to lose the health insurance that you liked, no doubt you are scrambling to find a replacement before January 1.  As just about everyone knows, the website Healthcare.gov hasn’t been working effectively for over a month.  And don’t pay too much attention to Obama’s latest declaration in which he encouraged people to call the Healthcare.gov call center to sign up.  He said, “…keep in mind, these call centers are already up and running.  And you can get your questions answered by real people, 24 hours a day, in 150 different languages.  The phone number for these call centers is 1-800-318-2596.”

The only problem is the call centers use the Obamacare website to sign people up as well so they aren’t going to have much better luck getting you enrolled.

Eventually all plans will become “un-grandfathered.”  Simple economics and inflation will force this to happen.  Plus, keep in mind Obamacare and big government isn’t finished with designing your health plan.  The law requires the Secretary of Health and Human Services to define and annually update the benefit package starting in 2014 too.  But don’t expect benefits to be continually expanded.  Instead, be prepared for things to be taken away because that is what has happened in every country where a centralized government took control over of its citizens’ healthcare choices.

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