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Health Law's "Grandfather" Clause Could Deprive Consumers Of Key Benefits

May 10, 2010

Millions of Americans could lose some important benefits of the new health overhaul law depending on how the Obama administration chooses to interpret one term: "grandfathered."

Under the law, existing, or "grandfathered" health plans are exempt from several consumer protections, including a requirement that beginning as early as September prohibits health plans from charging co-payments and other cost-sharing for certain preventive health services such as immunizations and cancer screenings.

The issue has touched off a debate over how grandfathering is defined, with some consumer and employer groups squaring off. Consumer groups say that if the definition is too lenient many Americans won’t get the full benefit of the law. Meanwhile, some business groups say that if their plans have to forfeit their grandfather status, they’ll be subject to all the new rules that raise costs and premiums.

Congress included the grandfather provisions in the bill to give employers and insurers time to transition to the new law. But the law is mostly vague on exactly what constitutes a grandfathered plan. For example, does a plan lose its grandfather status if it increases employees’ deductibles or changes prescription drug coverage? Plans that give up their grandfather status must abide by all the consumer protections in the new law.

The administration, which is writing the regulations that implement the new law, is expected to issue its guidance soon on how it interprets the grandfathering clause.

Asked about the issue, Jessica Santillo, a spokeswoman for the Department of Health and Human Services, didn’t comment directly. Alluding to President Barack Obama’s oft-repeated pledge, she said, "Under health reform, Americans who like their health care can keep it and we'll change the balance of power to put consumers in control of their health care, not big insurance companies. Our work to implement this law and draft regulations is ongoing, but we've already made tremendous progress."

'Plans Can Evolve'

Many employer organizations, including the U.S. Chamber of Commerce and the National Federation of Independent Business, are pushing for a loose interpretation of "grandfathering" that allows employers to maintain flexibility in designing coverage. They want employers to be able to make changes in their health plans while retaining their grandfathered status. They fear that many of the law’s requirements will increase costs and premiums.

"The no-brainer solution is to have an understanding that plans can evolve and change and that should not trigger loss of grandfathering,” said James Gelfand, a lobbyist for the U.S. Chamber.

America's Health Insurance Plans, the major health insurance lobby, also backs a broad definition that would allow plans to make "routine" changes and still maintain their grandfather status. "Our focus is on minimizing disruption for the more than 200 million people we serve as we look at these implementation issues," said spokesman Robert Zirkelbach.

But consumer groups and organizations such as the American Cancer Society Cancer Action Network worry the "grandfathering" clauses will be a huge loophole that allows employers and insurers to avoid complying with the law's increased consumer protections and benefits. "This is one of the most critical issues going forward in the regulation writing," said Erin Reidy, senior policy analyst at the cancer group. "We are very concerned."

Reidy said that grandfathered plans could go on into perpetuity because the law does not give a date when that status expires. She said the group is recommending that the administration "adopt a real narrow definition of grandfathering and any change to coverage should constitute a loss of grandfathering status."

Consumer Protections 

The grandfathered plans are subject to some consumer protections in the bill, including a requirement that plans provide dependent coverage for children until age 26; a ban on pre-existing condition exclusions for children this year and everyone in 2014, and a prohibition on lifetime insurance limits. In addition, grandfathered health plans will be blocked from retroactively canceling coverage after a policyholder gets sick.

But grandfathered plans also will be exempt from some consumer protections, including one requirement that health plans cover certain treatments associated with clinical trials, and another that limits annual out-of-pocket costs. In addition, grandfathered plans won't have to meet new rules limiting how much premiums can vary based on age and tobacco use.

Some state regulators are confused. "What’s not clear to me is actually how we are going to define a grandfathered plan," said Beth Sammis, acting insurance commissioner for Maryland.

Some employers are concerned that changes they typically make every year to their employee health coverage -- such as changing a policy’s co-pays or deductibles – could alter a plan’s grandfathered status. “(Employers’) ability to manage future costs will be constrained to some degree,” said Neil Trautwein, vice president and employee benefits policy counsel for the National Retail Federation. “There are cases where (medical) practice may change, where they might want to encourage behavior – further incentives on wellness, for example – and we’re leery about how big a tripwire there will be for changes."

Employers are anxious to see the new regulations from the Obama administration because they need the information this summer as they develop their health benefits for 2011, said Sally Doubet King, a partner with the McGuireWoods law firm in Chicago. "I know of several employers who want to be sure not do anything that would take them out of grandfather status," she said.



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