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The Truth About the "Obamacare Exemptions"

There's been a lot of talk in the last week about companies that are "exempt" from the Affordable Care Act (ACA), most from Republicans who would like Americans to think that certain companies are getting preferential treatment.  The situation is complex - because the law is complex - but the blanket statement that companies or people are "exempt from Obamacare" is simply not true.  

As part of the ACA, insurance companies are required to offer free preventive services, are not allowed to impose lifetime benefit limits, must offer a package of "essential health benefits", including maternity and mental health care, and must offer dependent coverage for young adults up to age 26. Certain health plans that were in existence on March 23, 2010 (the day the ACA was signed into law) have been exempted from some - but not all - of these requirements, in order to allow them to keep current policies and have a smoother transition into the ACA era.  A grandfathered plan, for example, does not have to offer preventive care without cost-sharing, does not have to offer the essential health benefits package, and can impose annual (but not lifetime) benefit caps. A grandfathered plan also can deny coverage to children under 19 for pre-existing conditions.  A grandfathered plan may not impose lifetime benefit caps, and must offer dependent coverage up to age 26.

In exchange for being grandfathered and thus "exempt" from some ACA requirements, these plans cannot make significant changes to benefits, premiums, deductibles, or co-pays.  This is where the "if you like your plan, you can keep it" comes from.  In effect, these plans have struck a deal where they are not required to make the big changes to coverage required by the ACA, and in return will not make big changes in the cost to policy holders.  The definition of "significant changes" is laid out at great length here, but here are the basic rules in a nutshell.  A grandfathered plan may not:  increase the cost-sharing percentage requirement; increase co-payments beyond medical inflation rates;  decrease its annual benefit limits; eliminate benefits to diagnose or treat a certain condition; or decrease the employer contribution rate by more than 5%.  With regards to premiums, grandfathered plans must adhere to the 80/20 rule; 80% of premium dollars must go towards care and quality improvement, not to administrative costs and bonuses.  But grandfathered plans are not subject to rate review, which requires all non-grandfathered plans to publicly justify any premium increase over 10% before such an increase could take effect. Yes, that means that within the 80/20 parameters, premium increases are not limited. 

How do you know if your plan is grandfathered?  Your best bet is to ask your company's HR department or the insurance company itself.  In 2013, approximately 36% of those who get coverage through their jobs are in grandfathered plans.  Additionally, in 2013, 54% of companies who offered health insurance offered at least one grandfathered plan.  Over time, fewer plans are expected to be grandfathered, as they begin to implement ACA coverage requirements, and as participants switch to non-grandfathered plans.   

Why would an employer grandfather its health plans? Well, it keeps the plans from having to add the additional preventive benefits, which are estimated to increase premiums by half a percent.  It allows them to avoid the new appeals process requirements (which provide for a more transparent and accountable system for appealing denied claims) and HHS reporting requirements. It also allows them to keep a discriminatory insured plan, which is basically an "extra-cushy" plan for a company's executives.

So there you have it. "If you like your plan, you can keep it" has not turned out exactly as originally planned, but these are the reasons why.  Earlier drafts of the Affordable Care Act had a much tighter rein on insurance companies, but the free market proponents won out in the end, and this patchwork of compromise is what has resulted.  At this point, information is your best weapon. Educate yourself on exactly what your plan provides, and don't be afraid to look at other plans that your company may offer. You may find that a non-grandfathered plan saves you more money in the long run than sticking with the insurance you currently have. As for me, I buy my own insurance, so I'll be heading to www.healthcare.gov soon to see what plans are available to me in Illinois...and I'll blog about the experience.

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