Employer plans face tighter rules

More than half of employer-sponsored health plans would be subject to stricter federal rules under an interim final regulation released today by HHS.

Government estimates show that approximately 66% of small employers and 45% of larger ones are likely to lose a coveted status that shields health plans from some parts of the new reform law.

Under President Barack Obama’s reforms, group health plans in place as of March 23, 2010, could gain “grandfathered” status, meaning they could sidestep some components of the new law.

For instance, grandfathered plans do not have to fully pay for preventive health services, which is required coverage for most other payers starting Sept. 23. But grandfathered plans do have to oblige other parts of the law. Rules aimed at stopping plans from dropping coverage once a person gets sick still apply, as do prohibitions on pre-existing conditions and lifetime caps.

The HHS, in a highly complicated interim rule, outlines a number of ways health plans could lose their grandfathered status.

“By grandfathering these plans in, we provide Americans who like their plans with stability as extend new benefits and protections in the Affordable Care Act, gradually working toward the new, competitive marketplace,” HHS Secretary Kathleen Sebelius said.

Plans that substantially eliminate benefits to diagnose or treat a particular condition would lose the status, for instance. And changes to how much an enrollee pays could also lead to a plan being stripped of its grandfathered status.

Changes to the level of co-insurance—such as requiring a person who pays 20% of medical costs to instead pay 30%—could lead to loss of the status also. Increases in copayments that exceed a certain dollar amount would also lead to the loss of the grandfathered status. From the employer’s side, changes to its share of healthcare contributions could result in loss of grandfathered status. Employers that lower their payment share by 5 percentage points could be stripped of the status.

HHS said it believes that the existence of grandfathered health plans will provide individuals with the benefits of plan continuity. In addition, grandfathering could potentially slow the rate of premium growth and also provide an incentive to employers to continue coverage, potentially reducing new Medicaid enrollment and spending, the agency added.

Large group health plans are considered those with more than 100 employees, while small plans are considered those with fewer than 100. Government data show that 97 million Americans are covered by large group plans and roughly 41 million covered by small plans.

In total, approximately 66% of small employers and 48% of large ones made a change in either cost-sharing or premium contributions during 2009 that would require them to lose their grandfathered status.