If business owners thought the new health care bill was complicated, here’s yet another layer of complexity. The government has now issued new regulations on how employers can grandfather in their existing plans under the bill.

Each employer has to decide, based on cost and other factors, if it is best to be grandfathered or to get new coverage provided under the act. Employers will lose their grandfather status if they choose to significantly cut benefits or increase the out-of-pocket spending for their employees. All employers who wish to maintain grandfathered status should make sure to keep a record of their current plan and any changes made in the future.

Rules and Restrictions for Grandfathered Plans
Starting September 23, 2010, health plans, under the new bill, can’t place any lifetime limits on coverage, can’t be cancelled when people get sick, and have to provide parents’ coverage for young adults under the age of 26. In addition, there can be no coverage exclusions for children with pre-existing conditions and no restricted annual limits. In order for existing plans to remain grandfathered, the plan is compared to how it existed as of March 23, 2010.

The plan cannot significantly cut or reduce benefits. The plan cannot raise co-insurance premiums. Typically, co-insurance requires a patient to pay a fixed percentage of a charge. For the plan to be grandfathered, it cannot increase that percentage more than $5.00 plus a percent for medical inflation, which is currently 15 percent annually.

The plan cannot significantly raise deductibles any more than $5.00 plus the medical inflation amount. If the employer pays a portion of an employee’s premium, grandfathered plans cannot decrease the percent of premium the employer pays by more than 5 percent. The plan cannot add or tighten an annual payment limit on what the insurance company pays. Any grandfathered plan must include in it a statement that the employer believes it is a grandfathered plan.

To Grandfather or Not To Grandfather Your Plan
If the employer decides to buy insurance for their workers from a new insurance company, this new insurer’s plan will not be considered a grandfathered plan. This does not apply to employers that provide their own insurance to workers and switch plan administrators or change to a collective-bargaining agreement.

If a plan is not grandfathered, then it has to follow all of the requirements of the new health care bill, which increases benefits to employees. It is up to the employers to decide if they will keep a grandfathered plan in place, but there is no doubt that grandfathered plans will slowly go away.

For More Information
If you have questions about these or any other business issues, please contact one of the attorneys below:

Christina M. Noyes – 602-257-7488 – cmnoyes@gustlaw.com
Christina practices intellectual property, franchise and corporate law.