Small Business Reading Room

Thursday, August 25, 2011

What does Health Care Reform mean for Employers?

Are you feeling in the dark regarding what the new health care reform may mean to the plan you currently offer through your business? You are not alone!

While changes continue to be made to the requirements for employer-sponsored group health plans under the Affordable Care Act, guidance issued by the U.S. Departments of Health and Human Services, Labor, and the Treasury can help you comply.

This list came from the Questions and Answers: Keeping the Health Plan You Have: The Affordable Care Act and “Grandfathered” Health Plans.

What the New Rule Means for Employers:

Q: What effect will the new rule have on employers who now provide their employees with health coverage?

A: Most of the 133 million Americans with employer-sponsored health insurance through large employers enjoy some of the benefits of the Affordable Care Act now, regardless of whether their plan is grandfathered. The reforms that apply to all heath plans beginning on or after September 23rd include:

  • No lifetime limits on coverage for all plans;

  • No rescissions of coverage when people get sick and have previously made an unintentional mistake on their application;

  • Extension of parents’ coverage to most young adults under 26 years old;

  • People who work in smaller firms – which change insurers more often due to annual fluctuations in premiums –will enjoy all of these benefits plus new benefits when they choose a new plan, including:

  • Coverage of recommended prevention services with no cost sharing; and

  • Patient protections such as guaranteed access to OB-GYNs and pediatricians.

  • These Americans also can benefit from more affordable choices from health insurance Exchanges – competitive market places that will be established in 2014 and will offer individuals and workers in small businesses much greater choice of plans at more affordable rates and the same choices as Members of Congress.

    Q: Won’t employer plans eventually lose their grandfathered status?

    A: The “grandfather” rule which helps to implement the Affordable Care Act preserves the ability of the American people to keep their current plan if they like it, while providing new benefits, by minimizing market disruption and putting us on a glide path toward the competitive, patient-centered market of the future.

    While the Act requires all health plans to provide important new benefits to consumers, it allows plans that existed on March 23, 2010 to innovate and contain costs by allowing insurers and employers to make routine changes without losing grandfather status. These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with state or other Federal laws. Premium changes are not taken into account when determining whether or not a plan is grandfathered.

    Plans will lose their “grandfather” status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers – and consumers in plans that make such changes will gain new consumer protections.

    The 133 million Americans with employer-sponsored health insurance through large employers (100 or more workers) —who make up the vast majority of those with private health insurance today—will not see major changes to their coverage as a result of this regulation. The “grandfather” rule affirms that most of these plans will remain grandfathered – more than three-quarters of employers in 2011-- based on the decisions they made on benefits and costs over the last two years (2008-2009). Most of these plans already offer the patient protections applied to grandfathered plans such as no pre-existing condition exclusions. In addition, they are likely to already give their workers and families some of the additional protections in the Act, like a choice of OB-GYN and pediatrician and access to emergency rooms in other states without prior authorization.

    Based on past patterns of behavior, however, it is expected that large employers will continue to make adjustments to the health plans they offer from year to year so that, by the time the health insurance Exchanges are established in 2014, fewer large employer plans will have grandfather status. However, the assumed market changes depend on the choices large employers make in the future.

    People who work in smaller firms – which change insurers more often due to annual fluctuations in premiums – will enjoy all of the benefits of the Affordable Care Act when they choose a new plan. These Americans also will benefit from the new Health Insurance Exchanges that will be established in 2014 to offer individuals and workers in small businesses with much a greater choice of plans at more affordable rates – the same choices as members of Congress.

    Q: Will grandfathering freeze employers’ health plans in place, making it difficult for them to respond to rising health care costs and other changes?

    A: No. Grandfathered plans will have the flexibility to make changes in order to remain active and vibrant just so long as they don’t dramatically reduce people’s benefits or increase their cost-sharing. Among other things, plans will be able to:

  • Raise premiums to reasonably keep pace with health care costs;

  • Make some changes in the benefits that they offer;

  • Increase deductibles and other out-of-pocket costs within limits; and

  • Continue to enroll new employees and new family members.

  • For more information on what changes will cause employers and insurance plans to lose their grandfather status, please visit here.

    Q: Even with this flexibility, won’t health reform drive up employers’ coverage costs?

    A: One of the major goals of the Affordable Care Act is to slow the growth of costs by making important changes to the nation’s health insurance system. These changes will help consumers and employers regain control of their coverage and health costs. Through the “medical loss ratio” requirement, the Affordable Care Act will help ensure that insurance companies provide value for the premium dollars they charge. The law gives the Secretary of Health and Human Services authority to publicly post the proportion of premium dollars that an insurer spends on medical care as opposed to marketing or profits. If an insurer spends too much on non-medical expenses, it will be required to provide rebates. The new law also helps states monitor and crack down on unreasonable premium increases by insurers. It provides for grants to states to improve monitoring and regulation of premium increases by insurers.

    Q: What does health insurance reform and the new rule do for small businesses?

    A: Small business owners and entrepreneurs who buy their own insurance often pay the highest prices for coverage and suffer from the greatest limits on their benefits. Because of their relative lack of leverage, small businesses often make substantial changes in coverage from year to year, and therefore are expected to transition from their current grandfathered plans to ones with the Affordable Care Act’s new protections over the next few years.

    Health reform will immediately help small businesses sustain coverage for their workers, and provide them with affordable choices in the future. In 2010, small businesses may qualify for a tax credit to offset up to 35% of their premium contributions. In 2014, Exchanges will provide small employers and entrepreneurs with greater clout in the insurance market, tax credits up to 50% of their premiums, and stronger protections against objectionable insurance practices such pre-existing condition exclusions for their workers.

    Q: Will the Act and the new rule mean more red tape for employers who provide their employees with health coverage?

    A: No. Employers that already provide many of the benefits and protections provided for under the Affordable Care Act will experience relatively little change. The grandfather regulation provides illustrations to help guide employers’ decisions. When employers tell employees about their health plans, employers who believe their health plans are grandfathered must include information about their status and maintain records needed to verify it. In addition, the regulation includes provisions to smooth the transition to the new system by letting the government take into account a “good faith effort” by employers to comply. It exempts retiree-only and “excepted benefit plans” like dental insurance.

    Q: How does this policy affect plans that are negotiated by unions – collectively bargained arrangements?

    A: Health plans subject to collective bargaining agreements are generally able to maintain their grandfathered status through the end of the agreement. The law and regulations also include a special rule for collectively bargained plans that gives additional flexibility to change insurers during the collective bargaining agreement in effect on the date that the Affordable Care Act was signed. After that, collective bargaining agreements are subject to the same rules as other health plans.

    In the end, you have to recognize and prepare for the reality that the answers to these FAQs are subject to change based on new government requirements or directives. If you have any questions regarding your obligations with respect to health care reform, you should consult with a knowledgeable employment law attorney and your carrier for specific guidance.



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