Health-Plan Headaches

Trying to maintain grandfathered status for health-care plans appears to be an exercise in frustration, says one expert.

When Congress passed the Patient Protection and Affordable Care Act last March, some CFOs whose companies provide employee health-care coverage may have taken solace in knowing they wouldn’t have to comply with all the mandates of the new law, thanks to some provisions that shielded existing plans.

What they may not have realized was how hard it would be to remain eligible for the exemptions.

The list of triggers that negate a health-care plan’s “grandfathered” status is long and easy to trip over, including such actions as switching insurance carriers and tinkering with employees’ share of health-care costs in any substantive way.

In 2011 some companies may still be able to save money by hewing to the restrictions, says Chantel Sheaks, head of the government affairs group at Buck Consultants, “but the reality is that after next year, every plan I know of will lose grandfathered status.”

That’s because the cost savings associated with, say, switching carriers to get a better rate may overwhelm the additional costs associated with new requirements. The fact that 2010 costs and plan designs will remain the baseline into the future makes it only more likely that companies will drop their grandfathered status as time goes on. (While some original versions of the law offered greater incentives to remain grandfathered, Sheaks says many were stripped out in the reconciliation process between the House and the Senate.)

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The biggest-ticket items that companies with grandfathered plans currently avoid: expanding coverage for employees’ children up to age 26 even if they have other employer coverage options, covering children with pre-existing conditions, and preparing multiple reports on the plan (some requiring an external review) for the Department of Health and Human Services. The law also requires companies to cover preventive services such as mammograms at 100%, something that can be costly for companies if they’re not already doing so.

Company health-care plans that lose grandfathered status will also be subject to some federal oversight of the cost sharing they impose on employees, but the caps will be indexed to some measure of current health-care costs.

Unfortunately, no matter which option a company chooses, says Sheaks, CFOs are likely to see higher health-care costs, either thanks to swallowing higher insurance and claims bills or due to the new compliance measures.

Her advice? Companies should carefully communicate what’s behind any additional employee costs, including anything attributable to the new law. “Don’t just say premiums are going up, show [employees] why. Let them know that ‘we are required to do this, this, and this’ and this is why they are going up,” says Sheaks. “I do not think employers should take the blame.”

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