government

Health system reform will exempt some insurers

Stakeholders draw battle lines over how the government should oversee grandfathered plans.

By Doug Trapp — Posted Aug. 23, 2010

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Although the Obama administration has started phasing in new regulations on health insurers based on the health system reform law, not every plan will be subject to every new rule. Stakeholders have started to weigh in on exactly how the government should oversee grandfathered plans that were in existence when the reform law was enacted.

The Depts. of Health and Human Services, Labor, and Treasury had issued an interim final rule on June 14 outlining how the grandfathering process would work. While the American Medical Association and some consumer advocates have asked HHS to adopt tighter standards for grandfathered plans, health plan associations said the regulation already was too strict on its members. Individuals and organizations had until Aug. 16 to submit comments on the rule to HHS.

The rule is an excellent attempt to balance the need to ensure continuity of coverage by exempting current plans while enhancing consumer protections under new plans, wrote AMA Executive Vice President and CEO Michael D. Maves, MD, MBA, in an Aug. 12 comment letter to HHS. "The AMA believes, however, that without the incorporation of additional triggering events, many individuals' access to care will be hindered, if not denied."

Such triggering events are what would cause plans to lose their exempted status. A grandfathered health plan that reduces or refuses to expand its physician network adequately should lose its exempted status, as should plans that reduce drug coverage, Dr. Maves wrote.

Seventeen consumer and patient advocacy organizations, including Families USA and the American Heart Assn., said in an Aug. 16 letter to HHS that the regulation should not allow exempted plans to change their drug coverage or physician networks. In addition, they suggested that exempted plans should not be able to modify what type of plan they are, such as changing from a PPO to an HMO.

However, health plans should not be penalized if doctors and other health professionals relocate out of the plans' service areas, said Jeffery L. Gabardi, senior vice president for state affairs for America's Health Insurance Plans, in an Aug. 16 letter to HHS. Changes in drug formularies also should be allowed, because the drug market is always in flux due to new products, he said.

Gabardi suggested that HHS permit larger increases in patient cost-sharing by grandfathered plans than allowed under the interim final rule. He said overall health care costs probably will grow faster than the medical portion of the consumer price index, the standard used to limit cost-sharing updates in the regulation.

Health plans should be allowed to increase cost sharing or scale back covered benefits at the request of subscribers who want lower premiums, wrote Alissa Fox, senior vice president of the Blue Cross Blue Shield Assn., in an Aug. 16 letter to HHS.

The grandfathering details

Existing plans that cover millions of people -- especially in the individual market -- will not be required to follow some of the new regulations if the plans do not change significantly, according to the June 14 interim final rule.

For example, while all group health plans must end annual coverage limits for plan years starting after Sept. 22, existing individual market plans are not required to follow suit and are grandfathered in.

Plans will be allowed to make small changes to coverage and cost-sharing and remain exempt from some of the regulations. However, plans that exceed standards spelled out in the rule will lose their grandfathered status. For example, an exempted plan will lose its status if it tightens its annual coverage limits on enrollees.

But even if no existing health plans change significantly, the regulations will cover more people each year as they switch plans. A person enrolling in a different plan for the first time after Sept. 22 would be covered by all of the new insurance regulations. For example, about 17 million Americans have individual market coverage, according to HHS, but at least 40% switch plans each year.

HHS estimates that most large- and small-group plans could lose their grandfathered status by 2013. Of the 133 million people covered by large-group plans, as few as 47.9 million still could be in exempted plans in 2013, according to one HHS projection. Likewise, as few as 8.6 million of the 43 million people with small business coverage could remain in grandfathered plans in 2013, according to the department.

The full force of the health reform law's regulations takes effect in 2014. Starting that year, health plans no longer will be able to deny coverage because of pre-existing conditions and must issue coverage no matter a person's health status, among other major changes.

In addition, some health reform regulations will apply to all plans before 2014 regardless of grandfather status. For example, all health plans will be unable to place lifetime limits on coverage, or rescind coverage due to illnesses or unintended mistakes on insurance applications. Also, plans must allow adults under 26 to remain on their parents' coverage.

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ADDITIONAL INFORMATION

Grandfathering process

Many health insurance plans that existed when health reform was enacted will be exempted from certain provisions of the law, as long as they do not significantly change their cost or benefits structures.

Regulation Applies to existing group plans? Applies to existing individual plans?
Ending preexisting condition exclusions Yes No
Mandating preventive care with no cost-sharing No No
Ending annual coverage limits Yes No
Ending lifetime coverage limits Yes Yes
Banning prior authorizations for emergency care and higher cost-sharing for out-of-network emergency care No No
Mandating rights to internal and external appeals No No
Mandating rights to access ob-gyns without referral No No
Mandating rights to a choice of primary care physicians No No

Source: "Grandfathered Plans Under the Patient Protection and Affordable Care Act," Families USA, August (link)

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Losing grandfather protection

Although many current health plans will fall into the grandfathered category, some actions by those insurers would end their exempted status:

  • Increasing deductibles or out-of-pocket cost-sharing limits by more than medical inflation plus 15 percentage points.
  • Lowering annual coverage limits or increasing coinsurance costs.
  • Reducing employers' premium shares by five percentage points or more since March 23.
  • Ending most or all coverage of a particular medical condition.
  • Increasing co-payments by the greater of $5 or medical inflation plus 15 percentage points.

Source: "Grandfathered Plans Under the Patient Protection and Affordable Care Act," Families USA, August (link)

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