Why Obamacare Grandfathered Plans are Going Extinct

President Obama’s “If you like your plan, you can keep it” pledge was never true.  Obamacare’s grandfathered plan structure was designed from the start to make sure that you can’t keep your pre-PPACA plan.  This is something we’ve been dealing with since 2010, but now it’s reaching the crisis point as we head into exchange-dominated 2014.

The idea that a grandfathered plan that can continue unchanged after March 23, 2010 (the date PPACA was enacted) is a farce.  This is why the number of plans losing of grandfathered status is coming in above estimates, and in some cases it’s thought to be up to 80%.  In the individual market, this is a one-way ticket to the government-driven Obamacare exchange.

There are two main reasons why no health plan, grandfathered or not, can escape Obamacare unscathed:

1) It’s Almost Impossible to Maintain Grandfathered Status

Broad executive discretion.  Now there’s a spooky phrase.  Happy Halloween!

Here’s how PPACA Section 1251(e) defines a “grandfathered health plan”:

(e) DEFINITION.—In this title, the term ‘‘grandfathered health plan’’ means any group health plan or health insurance coverage to which this section applies.

In other words, DOL/HHS/IRS get to decide what it means.  Here’s what they had to say in the  2010 preamble to the grandfathered plan regulations:

The statute does not, however, address at what point changes to a group health plan or health insurance coverage in which an individual was enrolled on March 23, 2010 are significant enough to cause the plan or health insurance coverage to cease to be a grandfathered health plan, leaving that question to be addressed by regulatory guidance.

This is where some experience with bureaucratese comes in handy.  Paragraph (g)(1) of the regulations specifies six changes that will cause a plan to lose grandfathered status.  This (g)(1) list is best summarized in tri-agency FAQ guidance:

Paragraph (g)(1) of the Departments’ interim final grandfather regulations provides that any of six changes (measured from March 23, 2010) are considered to change a health plan so significantly that they will cause a group health plan or health insurance coverage to relinquish grandfather status. Briefly stated, these six changes are:

1. Elimination of all or substantially all benefits to diagnose or treat a particular condition.

2. Increase in a percentage cost-sharing requirement (e.g., raising an individual’s coinsurance requirement from 20% to 25%).

3. Increase in a deductible or out-of-pocket maximum by an amount that exceeds medical inflation plus 15 percentage points.

4. Increase in a copayment by an amount that exceeds medical inflation plus 15 percentage points (or, if greater, $5 plus medical inflation).

5. Decrease in an employer’s contribution rate towards the cost of coverage by more than 5 percentage points.

6. Imposition of annual limits on the dollar value of all benefits below specified amounts

In other words, your plan must be fixed in time from the arbitrary March 23, 2010 date to remain grandfathered.

Cut one benefit to reduce premium rates?  Loss of grandfathered status.

The plan’s coinsurance rate for a service increased from 10% to 11% to reflect patient utilization?  Loss of grandfathered status.

Switched from $1,500 deductible to $2,000 deductible to make the plan more consumer-driven?  Loss of grandfathered status.

The plan’s employer contribution changed from 80% to 70% to reflect rising costs?  Loss of grandfathered status.

Plans adapt and change over time.  The grandfathered plan regulations hold them stuck in the mud.  Most plans have already abandoned the grandfathered plan track as a result.  Which is likely exactly what the Obama administration had in mind.  The sooner your plan is non-grandfathered, the sooner you’ll be part of the system.

2) Even if Your Plan Maintained Grandfathered Status, It’s Still Subject to Obamacare

Let’s say your plan has submitted to the regulatory straightjacket and remained essentially unchanged since 2010.  Does that mean you can have the same plan now or in 2014 that you had before Obamacare?  Answer: No.

This is a dirty secret that has deserved more attention.  The Obamacare statute itself, as originally passed by Congress, is designed to force even grandfathered plans to comply with many of Obamacare’s mandates.

Here’s how the administration’s agencies describe the situation (emphasis added):

However, to ensure access to coverage with certain particularly significant protections, Congress required grandfathered health plans to comply with a subset of the Affordable Care Act’s health reform provisions. Thus, for example, grandfathered health plans must comply with the prohibition on rescissions of coverage except in the case of fraud or intentional misrepresentation and the elimination of lifetime limits (both of which apply for plan years, or in the individual market, policy years, beginning on or after September 23, 2010).
[…]
A number of additional reforms apply for plan years (in the individual market, policy years) beginning on or after January 1, 2014. As with the requirements effective for plan years (in the individual market, policy years) beginning on or after September 23, 2010, grandfathered health plans must then comply with some, but not all of these reforms.

Grandfathered plans are still forced to cover children to age 26, eliminate lifetime and annual limits, eliminate preexisting condition exclusions, limit waiting periods to 90 days, pay PCOR and transitional reinsurance fees, and are subject to the employer mandate and Cadillac plan excise taxes — to name a few.  Sound like the same plan you used to have?

The DOL posted a summary of some of the Obamacare mandates that apply even to grandfathered plans.

Why should health plans comply with rigid restrictions on plan modifications if maintaining grandfathered status won’t exempt them from many of Obamacare’s most demanding mandates?  The payoff usually just isn’t there.  Which is why the grandfathered plan is on a path to extinction.

Four Pinocchios

The Washington Post’s Fact Checker just gave President Obama a Four Pinocchios rating for his phony “If you like your health care plan, you can keep your health care plan” pledge.

Next up: How about Valerie Jarrett’s incredible tweet stating “FACT: Nothing in #Obamacare forces people out of their health plans.  No change is required unless insurance companies change their existing plans.”  Ms. Jarrett, if you’re the administration’s policy guru and the President’s go-to advisor, you might try reading the regulations they issue.  The Federal Register isn’t just for kindling.

Here are the real facts:

FACT: Nothing in #Obamacare ensures that if you like your health plan, you can keep it. In fact, the law makes it nearly impossible to maintain grandfathered status.

FACT: #Obamacare forces every health plan to change, even the few that have managed to remain grandfathered.