J.P. Farley News and Blog

Notes on Grandfathering your Health Plan

While health reform created a status known as Grandfathered the question for plans remains: to be grandfathered or become a non-grandfathered plan. We have been hearing several people tell J.P. Farley that they are being advised by their brokers or advisors to not consider changing health insurance plans so that they may retain their grandfather status.

This seems to be bad advice for several reasons:

1. You cannot change your health insurance provider to another insurance carrier and retain grandfather status. That can be very, very expensive.
2. You can only change your benefits a little and retain grandfather status. That can be very, very expensive.
3. The benefits of retaining grandfather status are pretty limited and have little value financially or administratively.

The high impact changes that occur between 2010 and 2013 and apply to all plans, regardless as to a plan being grandfathered or non-grandfathered. These changes include the removal of annual and lifetime maximum limits, coverage of adult children, and the Summary of Benefits using HHS uniform definitions provisions and the various new reporting requirements.

Let's look at what retaining grandfathered status avoids and the benefits of each as it pertains to most health benefit plans.

Requirement Avoided for retaining Grandfathering before 2014

Value of Avoiding:

1. No cost sharing for preventive care or immunization.

• Not a significant cost driver;
• No cost sharing for preventive care or immunizations
• Not a significant cost driver;
• Maximum cost impact is a few hundred $$$ per participant per year;
• Not likely to significantly increase utilization -- no or low cost will not increase interest for those not interested in the first place

2. Code section 105(h) applies to fully insured plans

• If discriminatory, penalty is limited to $36,500 per year.  That is equal to about a onetime 4% increase on a typical    plan covering 100 employees.  
•  Reducing an increase has much more value than the penalty for changing carriers.

3. Allow females to choose their own OB/GYN without a referral

•  Most plans already allow this.  
•  Not a cost issue.

4. Allow individuals to choose pediatrician/primary care provider

• Most plans already allow this.  
• Not a cost issue

5. Allow emergency services w/o pre-authorization and treat as in-network

• Most plans already allow this.  
• Not a cost issue

6. Wellness plan firearm information gathering

• As understood, this is not a significant issue.

After 2014, a few more distinctions will arise. However, the problems most plans will have to deal with effective in 2014--mandates for coverage, financial penalties for non-coverage, voucher issues and penalties, and so forth--are the real problems that most plans will face. Grandfather status will lose its meaning. The only longer term potential financial benefit grandfathering may have a favorable impact on is the ability to limit coverage for clinical trials.  

Not taking action to avoid loss of grandfathering status will expose plans to negative financial impacts that far exceed any potential value that retention of grandfathering status will offer for the vast, vast majority of plans. It is not the best course of action for most plans.