Keeping Your Health Insurance Plan

Remember the promise made during the health care debate that “if you like your health care coverage, you can keep it?" Now it seems that fewer than 20% of small businesses will be able to do so.

The Administration estimates that 43 million individuals covered by plans of small businesses will probably lose existing coverage because of how the so-called grandfather rule has been defined.

What’s the grandfather rule? Under the Patient Protection and Affordable Care Act, insurance plans in effect on March 23, 2010, can be retained indefinitely (the plan is “grandfathered”) if they satisfy certain requirements. Businesses with plans that fail to satisfy the grandfather rule will have to obtain new, more expensive, coverage (they will be more expensive because they will have to include certain benefits not currently mandated).

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Interim final regulations detail how to remain a grandfathered plan. The plan will not be grandfathered if any of the following occurs:

  • There is a decrease in the types of benefits covered by the plan (e.g., eliminating special benefits for diabetics).
  • There is a significant increase in co-payments, which is defined as more than the greater of $5, adjusted annually for medical inflation, or a percentage equal to medical inflation plus 15 percentage points (e.g., a co-payment increase from $30 to $50 over the next two years would cause the loss of grandfathering).
  • There is a significant increase in plan deductibles, which is defined as no more than a percentage equal to medical inflation plus 15 percentage points (e.g., if medical inflation is 5%, then the deductible cannot increase by more than 20%).
  • There is a substantial increase in the cost of coverage borne by employees by decreasing the employer’s share (e.g., decreasing the employer’s share by more than 5 percentage points).
  • There is a change in insurance companies, even if comparable insurance is purchased.

What to do now?

Review the details of the grandfather rule in a fact sheet from HealthReform.gov. If you currently have health coverage for your business, before you make any changes, consult with an expert who understands the new grandfather rule.

Your insurance agent may not be the right expert (although some may master the new rule).  You may want to review your proposed changes with your accountant.

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