Administration Estimates Project Big Shifts in Workplace Health Care

Draft regulations being developed by the Obama administration project that more than half of employer health care plans may lose their grandfathered status – and therefore be required to comply with the provisions of the Patient Protection and Affordable Care Act (PPACA) signed into law in March (see What Do Plan Sponsors Need to Be Worried About Within the Next Year Under PPACA?).

A table in the 83-page draft regulations – that was briefly on the website of the Office of Management and Budget – offered a range of estimates of how many employees are currently covered by programs that would lose their grandfathered status by 2013 range from nearly 40% to as many as 69%, according to published reports.  The midrange assumption is just over half (51%).  The Wall Street Journal reports that the report’s worst case assumption is that 80% of small-employers will lose grandfathered rights by 2013.

Generally, grandfathered plans do not have to comply with most of the new provisions under the insurance market reform rules, including the requirement to offer preventive health without cost sharing, establish external review procedures, offer choice of primary care providers, cover clinical trials, rating restrictions, and guaranteed access/renewability rules.  However, even grandfathered plans are subject to some rules, including restrictions on annual and lifetime limits, pre-existing condition exclusion requirements, and the requirement to cover adult children to age 26.  In addition, the grandfather rules do not apply to the new tax rules (including changes for FSAs), the employer excise tax, and the employer mandates.  So, grandfathered plans still will need to review each provision to see how the new rules may impact them (see What is a Grandfathered Plan?).

According to the WSJ, under the draft regulations a plan that increases an employee’s share of medical costs to 30% from 20% would trigger the loss of grandfathered status. So would increasing a deductible by more than a set limit—medical inflation plus 15% since March 23 (the date the law was signed by President Obama)—according to the report.  Not surprisingly in view of the firestorm attendant with the brief “publication” of the projections, the Obama Administration took pains to say that the final rules are still being written.

The regulations, being written by the U.S. Health and Human Services, Labor, and Treasury departments, are expected to be finalized soon.