What to Do About Health Care Insurance Now

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Many small businesses struggle to provide health coverage for their staff. If you are one of these businesses and feel caught between a rock and a hard place, there are good reasons. According to one report, premiums are going up in 2011 by 9% for all employers (higher for smaller employers), but new health care regulations say you can't do much about it. Here's the dilemma: Under the Patient Protection and Affordable Care Act ("health care reform"), policies will soon have to provide certain types of coverage and meet other standards that will substantially raise costs unless they are "grandfathered." Interim final regulations detail what "grandfathering" means, and these regulations aren't kind to small businesses.

Which plans will lose grandfathering?

The statement expressed during the health care debate was the assurance that "if you like what you have, you can keep it [your own insurance]." However, this will likely not apply to 80% of small businesses; they will be forced to switch. The other 20% may be able to retain their current plans, but only if they meet new grandfathering rules.

Plans in effect on March 23, 2010, can be kept by small businesses unless certain changes are made. Interim final regulations say unacceptable changes that will mean the loss of grandfathering include the following.

Significantly cutting or reducing benefits. For example, if your plan now covers care for people with diabetes, this cannot be reduced or eliminated.

Raising co-insurance charges. A plan cannot increase at all the percentage of the co-insurance payment that is required of an insured. For example, if there is a 20% co-pay as of March 20, this cannot be increased to 21% without losing grandfathering.

Significantly raising co-payment charges. A "significant" raise 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. For example, if a plan raises its copayment from $30 to $50 over the next two years, it will lose grandfathering.

Significantly raising insurance deductibles. A "significant" raise is defined as more than a percentage equal to medical inflation plus 15 percentage points. For example, if medical inflation is 4%, then the deductibles can't be increased by more than 19%.

Significantly lowering employer contributions. If you share insurance costs with employees, you cannot decrease your share by more than 5 percentage points (i.e., increase the employee's share, say, from 20% to 30%).

Adding or tightening the annual limit on what the insurer pays. If there is an annual dollar cap on what insurance will cover, this cannot be changed.

Changing insurance companies. You must stay with the same insurer. Even if you obtain identical coverage from a new carrier (because you can get it for less money), you'll lose grandfathering.

Changes to grandfathered plans

Even if a plan is treated as grandfathered, it must adhere to new rules, which include:

• The plan may not prohibit preexisting condition exclusion or other discrimination based on health status.
• There can be no excessive waiting periods.
• There can be no lifetime limits.
• The plan must extend dependent coverage until age 26.
• The plan must develop and utilize a uniform explanation of coverage documents and standardized definitions.

Final Word

If you have coverage now, don't make any changes before reviewing the regulations. They are extensive, but you can read a fact sheet about them from HealthReform.gov. Also consult with your business advisers to determine the best course of action now.