Health CareWhen explaining your company’s benefits package to employees, you should make sure to state whether the health plan you offer is “grandfathered” or not. Employees who are not familiar with this term might experience some confusion – no, this is not a health plan for elderly employees or grandparents. It is a term that means quite a lot when it comes to employee health plans.

Here is what both HR and employees need to know about grandfathered health plans:

The term “grandfathered” health plan was coined in March 2010, the same time that The Affordable Care Act (Obamacare) was passed. Health plans that were in effect at this time are not subject to the Act’s requirements. This applies to both group plans offered by employers or to individuals who purchased a healthcare policy before this date.

Can plans lose their grandfathered status?

Plans can lose their grandfathered status if the employer makes changes that significantly reduce benefits or increase costs to employees. At whatever point in time the company chooses to make an amendment to their plan, that is the point that their grandfathered status will be lost. They will then need to comply with Obamacare requirements.

Not all amendments, however, will make a health plan lose its grandfathered status. Only the following 6 changes to your company’s health plan will make it lose its grandfathered status:

  • Significantly cutting or lowering coverage
  • Raising coinsurance by a percentage (i.e., raising it from 15% to 20%)
  • Significantly raising copay charges
  • Significantly raising deductibles
  • Lowering employer contributions by 5 percentage points or more
  • Adding or tightening a yearly limit on what the health plan pays

Any other changes that are made will not make the health plan lose its grandfathered status.

Are new employees covered under grandfathered health plans?

Employees who are hired and join the health plan after March 2010 will still be covered by a grandfathered health plan. This is because the status of the plan depends on the company, not on the individual. If the company has a grandfathered plan, all new hires and their families will automatically be enrolled in that plan.

What are the pros and cons of having a grandfathered health plan?

For employers, the advantage of a health plan with grandfathered status is that you don’t need to comply with the current provisions of Obamacare. The disadvantage, however, is that your health plans are limited in the benefits they can offer and the cost changes they can make. While complying with the Affordable Care Act means a lot of bureaucratic work, it also means that you will have more flexibility in your plan.

To get more of an idea of the pros and cons of having a grandfathered health plan (if that is an option for you), take a look at some of the requirements, or non-requirements, of both types of plans.

All non-grandfathered plans MUST: Grandfathered plans DO NOT NEED TO:

End lifetime limits on coverage

 

Cover preventive care for free

 

End arbitrary cancellations of health coverage

 

Guarantee your right to appeal a coverage decision

Cover adult children up to age 26

 

Protect your choice of doctors and access to emergency care

 

Provide a Summary of Benefits and Coverage (SBC), a short, easy-to-understand summary of what a plan covers and costs

 

Be held accountable through Rate Review for excessive premium increases

 

Hold insurance companies accountable to spend your premiums on health care, not administrative costs and bonuses

 

 

If your company’s health plan has grandfathered status but you are not sure it’s the right solution for your business, speak to one of our advisors at Corporate Financial. We would be happy to help you find the best solution for your company.