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Pitfalls of PPACA – The Grandfathering Problem

Picture 5 Throughout his election campaign and his subsequent efforts to achieve passage of health care reform, President Obama assured Americans that anyone with existing coverage could keep that coverage. Consistent with the president’s promise, Democratic lawmakers worked to include language guaranteeing continuation of coverage in the reform legislation.

They may have been too successful.

Section 1251 of the Patient Protection and Affordable Care Act provides assurances that nothing in the Act requires that an individual terminate existing coverage, excludes many of the provisions of the Act from applying to existing coverage, and goes on to guarantee that existing coverage can be extended to new employees (in a group plan) and additional family members (if allowed by any plan).

On the one hand, these provisions counter some concerns about reform (at least for those who understand them). On the other hand, the grandfathering of existing coverage undermines much of the intent of other parts of PPACA. Grandfathered plans are exempt from each of the following reform requirements (and others):

  • Elimination of cost-sharing for preventive care
  • Elimination of annual limits (individual plans only)
  • Elimination of preexisting condition exclusions (individual plans only)
  • Provision to consumers of “plain language” plan information
  • Availability of a standard appeals process
  • Limitation on premium variations by age and other factors
  • Guaranteed availability of coverage
  • Guaranteed renewal of coverage
  • Prohibition on discrimination based on health status
  • Provision of comprehensive health care coverage

In other words, grandfathered plans will be able to continue most of the practices that have angered consumers—and discriminated against those most in need of coverage.

There’s another problem, too. In the small group market—and possibly also in the individual market in some states—the effect of grandfathering may be to reduce the diversity of the insurance exchange risk pools. Insurers will be eager to perpetuate their current plans and avoid most of the new regulatory requirements, while employers with younger and healthier employees will want to retain their prior lower-cost coverage, leaving older and sicker groups to migrate to the exchanges, with regulations and rates more favorable to them. The effect in states currently with high numbers of uninsured—and therefore potentially with the most exchange enrollees—may be minimal, but in others the result may be that premiums are higher for plans available through exchanges than for those outside, while many insurers may decide to focus on their present less-regulated business and simply avoid the exchanges.

Also by this author….

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE [reformupdate.blogspot.com].

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jessicajacksmithRoger CollierMD as HELLMichael Turpin Recent comment authors
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jessica
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jessica

I’m pretty confused by this whole healthcare stuff. I have a a PPO plan through Anthem that I pay for myself. I’ve had it for over 5 years now and I think it’s pretty expensive. Anthem is offering me a less expensive plan which I think is comparable if not better. What are the disadvantages of losing my “grandfather” status on the plan I currently have?

jacksmith
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jacksmith

Alan Grayson Honors The Dead http://www.youtube.com/watch?v=TV9TRoYMtjs&feature=player_embedded Alan Grayson on Healthcare http://www.youtube.com/watch?v=oPpQ2MNaSDo&feature=player_embedded Ron Sparks HealthCareReform http://youtu.be/kqlBFRJh4Cw John Garamendi – The Public Option http://www.youtube.com/watch?v=EyBTEke68aQ&feature=player_embedded I want to commend all of you for working so hard and being so strong at helping the whitehouse and congress begin to address our U.S. and Global healthcare crisis. You have been AWESOME! my fellow Americans and peoples of the World. America and the World is better and safer for it. My greatest pride is the knowledge that I am one of you. And that you really get it. You really understand the importance of it all.… Read more »

Roger Collier
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First, a couple of responses to critical comments on my original post: To Actuary – (1) Yes, grandfathering is likely to work to the advantage of most enrollees in grandfathered plans. But not all—and the dissatisfied always make more noise than the satisfied. (2) I doubt that we’ll see large companies dropping coverage, although we may well see coverage reductions as PPACA drives costs upwards (yes, I agree with you on this). The unknown here is what the final regulations will define as benefit changes that move a plan out of grandfathered status. To Brad – I didn’t intend to… Read more »

MD as HELL
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MD as HELL

Kaiser withered and died in Raleigh.

jd
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jd

Michael, agree on all points, and great analogy:
However, blaming the insurers for our health crisis is like trying to blame the school systems for juvenile delinquency. This is a team effort and the insurers would welcome more support to enforce tougher standards for care.
You should post here more often.

Michael Turpin
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jd – good points as well. The barriers to entry debate is typically brought up by those who believe competition will reduce healthcare costs. There is no evidence that more carriers – even non profits, makes a market’s healthcare more affordable. As soon as a non profit Blues plan runs down reserves ( if they do – most are overfunded ), commercial plans know the non profit must raise rates and they can shadow price the non profit to try to improve their loss ratio. “A few dominant insurers make it easier to control costs if the public will support… Read more »

jd
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jd

Good points, Michael. I tend to agree with you. The grandfathered plans will be phased out of existence as their mix of benefits loses relevance and groups decide it is worth changing. As Michael points out, most employers offer equivalent or richer benefits than the lowest benefit plans allowed under the new law. Employers that offer a lower benefit plan (mostly small employers with major medical type benefits) can always offer a lump sum to their employees to participate in the exchanges if they want to get out of the hassle of providing insurance directly. What has been overlooked is… Read more »

Michael Turpin
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Personally, I think grandfathering is a bit of a red herring. It essentially requires plans to freeze into place provisions that would most likely change each year as employers adjust plan designs to cope with medical inflation that will most certainly continue. ” Grandfathering” was a political false promise to allow voters to ” keep what they have” if they like it. The problem is that healthcare is provided by employers and not purchased by individuals. Employees will have no say on whether they can” keep what they have”. Employers will behave differently based on their size. The under 10… Read more »

Brad
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Brad

Roger
Even in the small group market, the same plan must be offered to all of the employees. Assuming cost of plan is not >9.5% of total income of worker, how would a company jettison a swath of their staff, say 10 of their costliest 30 workers, given eligibility issues for the HIE? They cant get in as they dont qualify. Alternatively, to get rid of the 10, they would have to purge the entire plan and get rid of the other 30 as well.
Thanks
Brad

Actuary
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Actuary

On the contrary, “grandfathering” is one of the few positive features of PPACA, although it doesn’t go far enough. All plans should be “grandfathered” until 2014 so people have the most time to get coverage that suits their budgets and mindset (i.e., I don’t mind having a large deductible). When even a $20 co-pay for preventative care is outlawed, you know that the authors are hoping we all believe in the mythical “free lunch”. The “keep your coverage” promise looks very shaky, especially given that large companies are already discussing dropping health coverage benefits for their employees. According to Actuarial… Read more »