When the Patient Protection and Affordable Care Act, aka Obamacare, starts rolling out in October, it will overhaul how Americans get health care coverage. Yet many workers will feel little immediate impact. That's because almost half the 160 million Americans who received health coverage through their jobs in 2012 were enrolled in what's known as a "grandfathered" insurance plan, according to a Kaiser Family Foundation report.
These plans won't have to conform to many of the new regulations mandated by health reform. They won't have to eliminate annual caps on coverage or pay for preventive services with no out-of-pocket costs. Grandfathered plans are also exempt from a requirement that insurers cover at least 60 percent of expected medical costs.
Many of the some 15 million non-elderly people who buy policies on their own—or six percent of the total—will also fall under this exemption. The Congressional Budget Office estimates about 12 million individuals will continue to buy insurance outside of government health exchanges set up under Obamacare.
Obamacare plans are largely designed to protect consumers—limiting what workers have to pay out of pocket and what insurers can refuse to cover.
But just because you can slip in under the grandfather exemption doesn't mean you should. You may find it advantageous to move into one of the new plans.
After all, the Obamacare plans are largely designed to protect consumers—limiting what workers have to pay out of pocket and what insurers can refuse to cover. All new individual policies will have to cover more services, including medication, maternity, and mental health care.
Any policy in place on March 23, 2010, the day health reform was enacted, falls under the grandfather exemption. As the Obama administration put it, if you like your plan, your doctor or both, you can keep them.
The best way to know whether your coverage falls into this category—if you get your coverage at work—is to ask your human resources department. If you buy your coverage privately, your insurer should send you a letter, or you can call and ask.
Last year some 60 percent of employers, large and small, offered at least one grandfathered plan during open enrollment, according to the Kaiser survey. New employees can also join a grandfathered plan so long as the company has maintained consecutive enrollment in it.
For a privately sold plan to be grandfathered it had to have maintained steady co-pay, deductible, and coverage rates until now, and members need to have been enrolled before the legislation passed in 2010. That's relatively rare, given government figures that 40 percent to 66 percent of people with individual market policies change plans within a year.
For old plans as well as new ones, premiums are likely to rise next year—though the old plans still could be considerably more affordable than the newer ones. That could make it difficult to decide whether to jump to the new or stick with the old grandfathered plan for as long as you can. Here are some considerations:
OLD PLANS, NEW PROTECTIONS
No Americans today have the same health coverage they did before Congress passed health care reform. That's because all plans, regardless of grandfathered status, must cover a policyholder's offspring until age 26 and can no longer impose any lifetime cap on benefits. Insurers are no longer allowed to retroactively cancel a policy except in the case of fraud. All these provisions are already in effect.
YOU MAY NEED MORE COVERAGE
Grandfathered plans won't have all the benefits of new plans—as many as half of individual plans currently on the market have such limited benefits that they wouldn't qualify to be sold under the new rules, according to a 2012 University of Chicago study.
Grandfathered plans don't have to provide full, co-payment-free coverage of preventive services, such as flu shots, mammograms, and cholesterol screenings. They don't have to cover a government-designated "essential benefits package" of procedures and treatments. Out-of-network emergency care may still require prior authorization, unlike with new plans.
Grandfathered policies bought by individuals carry their own exclusions, like a $750,000 annual cap on reimbursement for the aforementioned essential benefits, including hospitalization, emergency services, or pediatric care.
OLD PLANS MAY BE CHEAPER
Despite the enhancements, plenty of people will look at the new benefits under PPACA and think, "Thanks, but no thanks." Their current policy, grandfathered in, may satisfy their needs and include their doctors in its networks—at a manageable price. Indeed, many will find it's cheaper to keep their current coverage. Looking at plans in effect today, the online insurance broker eHealthInsurance found that premiums were 47 percent higher and deductibles were 27 percent lower than for individual plans that will incorporate all of PPACA's new rules.
Carrie McLean, consumer health insurance specialist for eHealthInsurance, notes it is not a direct apples-to-apples comparison because many existing plans don't meet basic requirements that all plans will follow as of next January. Also, members who buy coverage through health exchanges may qualify for government subsidies to ease costs. Nonetheless, average monthly premiums for individuals in plans without the newly required benefits—the closest equivalent to grandfathered plans—were $190 versus $279. Average deductibles for individuals were $2,257 versus $3,079.
Technically, a plan can stay grandfathered indefinitely, but few, if any, will. Most grandfathered plans have gone away already, according to the human-resources consultancy Mercer, which estimates only about a third of employers are expected to offer one in 2013.
Across the board, it is costs that will lead to the disappearance of most grandfathered plans. If employers or individual plans want to keep grandfathered status, they will have little leeway to pass higher costs along to policyholders. Any policy that increases co-payments, deductibles, or co-insurance forfeits its grandfathered status. So do plans that decrease the percentage employers contribute toward premiums, and employers can't switch insurance carriers without jeopardizing grandfathered status either.
"These are routine changes that most employers make every year," says J.D. Piro, senior vice president at the human-resources consulting firm Aon Hewitt. "So it's not really a question of whether a plan will lose grandfathered status, but when."