Fact Sheet: Keeping the Health Plan You Have: The Affordable Care Act and “Grandfathered” Health Plans
Updated April 11, 2012
New Tools to Fight Fraud, Strengthen Federal Health Programs, and Protect Taxpayer Dollars
The Affordable Care Act takes historic steps toward combating health care fraud, waste and abuse by providing critical new tools to crack down on entities and individuals attempting to defraud Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and private insurance plans.
The Centers for Medicare & Medicaid Services (CMS) is using state-of-the-art technology review claims before they are paid to track fraud trends and flag suspect activity. New power to fight fraud, granted in the health reform law, will also help achieve the 2012 goal of cutting the rate of improper payment claims in the traditional Medicare program by half.
Summary of Fraud Prevention Accomplishments Under the Affordable Care Act
Tough New Rules and Sentences for Criminals: The Affordable Care Act increases the federal sentencing guidelines for health care fraud offenses by 20-50 percent for crimes that involve more than $1 million in losses. The law establishes penalties for obstructing a fraud investigation or audit and makes it easier for the government to recapture any funds acquired through fraudulent practices. The law also makes it easier for the Department of Justice (DOJ) to investigate potential fraud or wrongdoing at facilities like nursing homes. Convictions under the Health Care Fraud and Abuse Control Program increased by over 27 percent (583 to 743) between 2009 and 2011, and the number of defendants facing criminal charges filed by federal prosecutors in 2011 increased by 74 percent compared with 2008 (1430 vs. 821).
Enhanced Screening and Other Enrollment Requirements: Last year CMS published rules to enforce some of the Affordable Care Act’s most powerful new fraud prevention tools. New requirements for providers and suppliers wishing to participate in Medicare, Medicaid, and CHIP who may pose a higher risk of fraud or abuse are now required to undergo a higher level of scrutiny. This scrutiny includes licensure checks and site visits to confirm legitimacy and location.
To support the Affordable Care Act’s new requirements for risk-based provider enrollment CMS implemented a new Automated Provider Screening (APS) system in December 2011. The APS uses existing information from public and private sources to automatically and continuously verify information submitted on a provider’s Medicare enrollment application including licensure status. The new system replaces the time- and resource-intensive process of manual review of the enrollment application.
In addition to the enhanced enrollment and screening requirements, the Affordable Care Act also allows the Secretary to impose a temporary moratorium on newly enrolling providers or suppliers of a particular type or in certain geographic areas if necessary to prevent or combat fraud, waste, and abuse. CMS will publish a Federal Register notice to announce any enrollment moratorium and to explain the agency’s rationale for its action.
Increased Coordination of Fraud Prevention Efforts: Many of the Affordable Care Act antifraud provisions increase coordination among states, CMS, and its law enforcement partners at the Office of the Inspector General (OIG) and DOJ. For instance, the law expressly authorizes CMS, in consultation with OIG, to suspend Medicare payments to providers or suppliers during the investigation of a credible allegation of fraud. This initiative reverses a long-standing Medicare practice of paying claims then attempting to recoup funds if the claim is found to be an error or fraudulent. States must also withhold payments to Medicaid providers where there is a pending investigation of a credible allegation of fraud unless the State Medicaid agency has good cause not to do so. The Affordable Care Act also ensures that fraudulent providers and suppliers cannot move easily from state to state or between Medicare and Medicaid by requiring all states to terminate anyone whose billing privileges have been revoked by Medicare or who has been terminated by another state Medicaid program for cause.
Health Care Fraud Prevention and Enforcement Action Team (HEAT): One of the most visible examples of increased collaboration is the Health Care Fraud Prevention and Enforcement Action Team (HEAT), a joint effort between HHS and DOJ to fight health care fraud. It has engaged law enforcement and professional staff at the highest levels of HHS and DOJ to increase coordination, intelligence sharing, and training among investigators, agents, prosecutors, analysts, and policymakers. A key component of HEAT is the Medicare Strike Force: interagency teams of analysts, investigators, and prosecutors who can target emerging or migrating fraud schemes, including fraud by criminals masquerading as health care providers or suppliers.
In 2011, HEAT coordinated the largest-ever federal health care fraud takedown. In one action, Strike Force teams charged 115 defendants in nine cities, including doctors, nurses, health care company owners and executives, for their alleged participation in Medicare fraud schemes involving more than $240 million in false billing. In another takedown, Strike Force prosecution teams charged 91 defendants in eight cities for their alleged participation in a Medicare fraud scheme involving more than $290 million in false billings.
Use of State-of-the-Art Fraud Detection Technology: To target resources to highly suspect behaviors, CMS has implemented the new Fraud Prevention System, which uses advanced predictive modeling technology to fight fraud. The system has been screening all Medicare fee-for-service claims before payment is made since June 30, 2011. Much like the predictive technologies used in the credit card industry, the Fraud Prevention System uses advanced technology to identify suspicious behavior and billing irregularities. This targets investigative resources on areas of vulnerability that demand immediate attention and response. By streaming claims on a prepayment basis, CMS and its investigative partners are able to more efficiently identify fraudulent claims and respond quickly to emerging trends.
New Focus on Compliance and Prevention: Under the new law, some preventive measures focus on certain categories of providers and suppliers that historically have presented concerns, including Home Health agencies, and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers.
On November 17, 2010, CMS published final regulations authorized under the Affordable Care Act requiring physician certification of a patient’s “face-to-face” visit with an appropriate health care professional to ensure Medicare only pays for necessary and covered Medicare home health and hospice services. On July 12, 2011, CMS proposed “face-to-face” encounter requirements for Medicaid home health including medical supplies, equipment and appliances. Additional face-to-face requirements to combat fraud among Medicare DME suppliers will be proposed later this year.
Expanded Overpayment Recovery Efforts: The Affordable Care Act expands the Recovery Audit Contractor (RAC) program to Medicaid, Medicare Advantage, and Medicare Part D programs. The Medicaid RAC program became effective on January 1, 2012 and is projected to save $2.1 billion over the next five years, of which $900 million will be returned to states. These efforts build on the success of the Medicare fee-for-service RAC program which in fiscal year 2011 recouped nearly $800 million in overpayments.
New Durable Medical Equipment (DME) Requirements: Under a new risk-based approach to fighting fraud, CMS has focused its efforts on combating fraud among DME suppliers by instituting enhanced enrollment standards and screening requirements. On August 27, 2010, CMS issued final rules enhancing Medicare enrollment standards for DME suppliers such as more stringent operations and facilities requirements to ensure only legitimate suppliers can participate in Medicare. Additionally, the competitive bidding program is expected to save the Medicare program and its beneficiaries $28 billion over 10 years. The second phase of the program will be expanded from 9 to 100 metropolitan areas across the country.
New Resources to Fight Fraud: The Affordable Care Act provides an additional $350 million over 10 years to ramp up anti-fraud efforts, including increasing scrutiny of claims before they’ve been paid, investments in sophisticated data analytics, and an increased number of law enforcement agents and others to fight fraud in the health care system.
Greater Oversight of Private Insurance Abuses: The new law also provides enhanced tools and authorities to address abuses of multiple employer welfare arrangements and protect employers and employees from insurance scams. It also gives new powers to the Secretary and Inspector General to investigate and audit the health insurance exchanges. This, plus the new rules to ensure accountability in the insurance industry, will protect consumers and increase the affordability of health care.
Senior Medicare Patrols: As a part of the new resources dedicated to fighting fraud, the Obama Administration has significantly expanded funding for Senior Medicare Patrols – groups of senior citizen volunteers to educate and empower their peers to identify, prevent and report health care fraud. The 75 percent increased funding from FY2008 to FY 2011 has helped thousands of Medicare beneficiaries host thousands of community meetings and educational events to increase awareness of fraud among people with Medicare and to solicit their help in preventing fraud.
Information above the latest update
U.S. Department of Health and Human Services,
The Affordable Care Act gives American families and businesses more control over their health care by providing greater benefits and protections for family members and employees. It also provides the stability, and also the flexibility, that families and businesses need to make the choices that work best for them.
During the health reform debate, President Obama made clear to Americans that “if you like your health plan, you can keep it.” He emphasized that there is nothing in the new law that would force them to change plans or doctors. Today, the Departments of Health and Human Services, Labor, and Treasury issued a new regulation for health coverage in place on March 23, 2010 that makes good on that promise by:
•Protecting the ability of individuals and businesses to keep their current plan;
•Providing important consumer protections that give Americans – rather than insurance companies – control over their own health care.
•Providing stability and flexibility to insurers and businesses that offer insurance coverage as the nation transitions to a more competitive marketplace in 2014 where businesses and consumers will have more affordable choices through Exchanges.
The rule announced today preserves the ability of the American people to keep their current plan if they like it, while providing new benefits, by minimizing market disruption and putting us on a glide path toward the competitive, patient-centered market of the future. While it requires all health plans to provide important new benefits to consumers, it allows plans that existed on March 23, 2010 to innovate and contain costs by allowing insurers and employers to make routine changes without losing grandfather status. Plans will lose their “grandfather” status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers – and consumers in plans that make such changes will gain new consumer protections.
Most of the 133 million Americans with employer-sponsored health insurance through large employers will maintain the coverage they have today. Large employer-based plans already offer most of the comprehensive benefits and consumer protections that the Affordable Care Act will provide to all Americans this year – such as preventing lifetime limits on coverage – and in the future.
People who work in smaller firms – which change insurers more often due to annual fluctuations in premiums – and people who purchase their own insurance in the individual market– a group that frequently changes coverage – will enjoy all of the benefits of the Affordable Care Act when they choose a new plan. These Americans also will benefit from the new competitive Exchanges that will be established in 2014 to offer individuals and workers in small businesses with greater choice of plans at more affordable rates – the same choice of plans as members of Congress.
Protecting Patients’ Rights in All Plans
All health plans – whether or not they are grandfathered plans – must provide certain benefits to their customers for plan years starting on or after September 23, 2010 including:
•No lifetime limits on coverage for all plans;
•No rescissions of coverage when people get sick and have previously made an unintentional mistake on their application;
•Extension of parents’ coverage to young adults under 26 years old; and the
For the vast majority of Americans who get their health insurance through employers, additional benefits will be offered, irrespective of whether their plan is grandfathered, including:
•No coverage exclusions for children with pre-existing conditions; and
•No “restricted” annual limits (e.g., annual dollar-amount limits on coverage below standards to be set in future regulations).
Additional Consumer Protections Apply to Non-Grandfathered Plans
Grandfathered health plans will be able to make routine changes to their policies and maintain their status. These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with State or other Federal laws. Premium changes are not taken into account when determining whether or not a plan is grandfathered.
Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to consumers. If a plan loses its grandfathered status, then consumers in these plans will gain additional new benefits including:
•Coverage of recommended prevention services with no cost sharing; and
•Patient protections such as guaranteed access to OB-GYNs and pediatricians.
Under the Affordable Care Act, these requirements are applicable to all new plans, and existing plans that choose to make the following changes that would cause them to lose their grandfathered status.
Compared to their polices in effect on March 23, 2010, grandfathered plans:
•Cannot Significantly Cut or Reduce Benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
•Cannot Raise Co-Insurance Charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill). Grandfathered plans cannot increase this percentage.
•Cannot Significantly Raise Co-Payment Charges. Frequently, plans require patients to pay a fixed-dollar amount for doctor’s office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no 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 2 years, it will lose its grandfathered status.
•Cannot Significantly Raise Deductibles. Many plans require patients to pay the first bills they receive each year (for example, the first $500, $1,000, or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points. In recent years, medical costs have risen an average of 4-to-5% so this formula would allow deductibles to go up, for example, by 19-20% between 2010 and 2011, or by 23-25% between 2010 and 2012. For a family with a $1,000 annual deductible, this would mean if they had a hike of $190 or $200 from 2010 to 2011, their plan could then increase the deductible again by another $50 the following year.
•Cannot Significantly Lower Employer Contributions. Many employers pay a portion of their employees’ premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).
•Cannot Add or Tighten an Annual Limit on What the Insurer Pays. Some insurers cap the amount that they will pay for covered services each year. If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010. Moreover, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high-cost enrollees).
•Cannot Change Insurance Companies. If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan. This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.
Protecting Against Abuse of Grandfathered Health Plan Status
To prevent health plans from using the grandfather rule to avoid providing important consumer protections, the regulation provides for:
•Promoting transparency by requiring a plan to disclose to consumers every time it distributes materials whether the plan believes that it is a grandfathered plan and therefore is not subject to some of the additional consumer protections of the Affordable Care Act. This allows consumers to understand the benefits of staying in a grandfathered plan or switching to a new plan. The plan must also provide contact information for enrollees to have their questions and complaints addressed;
•Revoking a plan’s grandfathered status if it forces consumers to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing as a means of avoiding new consumer protections; or
•Revoking a plan’s grandfathered status if it is bought by or merges with another plan simply to avoid complying with the law.
Projected Impact on Consumers and Plans
Large Employer Plans
The 133 million Americans with employer-sponsored health insurance through large employers (100 or more workers) —who make up the vast majority of those with private health insurance today—will not see major changes to their coverage as a result of this regulation. This regulation affirms that most of these plans will remain grandfathered – more than three-quarters of firms in 2011 – based on the way they changed cost sharing from 2008-2009. Most of these plans already offer the patient protections applied to grandfathered plans such as no pre-existing condition exclusions for children and no rescissions of coverage when a person gets sick. In addition, they are likely to already give their workers and families protections like a choice of OB-GYN and pediatrician and access to emergency rooms in other states without prior authorization. Based on past patterns of behavior, it is expected that large employers will continue to make adjustments to the health plans they offer from year to year so that, by the time the health insurance Exchanges are established in 2014, fewer – but still most – large employer plans will have grandfather status. However, the assumed market changes depend on the choices large employers make in the future.
Small Business Plans
The roughly 43 million people insured through small businesses will likely transition from their current plan to one with the new protections over the next few years. Small plans tend to make substantial changes to cost sharing, employer contributions, and health insurance issuers more frequently than large plans. As such, we estimate that 70% of plans will be grandfathered in the first year, but depending on the choices these employers make, this could drop to about one-third over several years. To help sustain small business coverage, the Affordable Care Act also includes a tax credit for up to 35% of their premium contributions.
Individual Health Market
The 17 million people who are covered in the individual health insurance market, where switching of plans and substantial changes in coverage are common, will receive the new protections of the Affordable Care Act sooner rather than later. Roughly 40 percent to two-thirds of people in individual market policies change plans within a year. Given this “churn,” the transition for the 17 million people in this market will be swift. In the short run, individuals whose plan changes and is no longer grandfathered will gain access to free preventive services, protections against restricted annual limits, and patient protections such as improved access to emergency rooms. These Americans also will benefit from the Health Insurance Exchanges that will be established in 2014 to offer individuals and workers in small businesses a much greater choice of plans at more affordable rates.
People in Special Types of Health Plans
Fully-insured health plans subject to collective bargaining agreements will be able to maintain their grandfathered status until their agreement terminates. After that point, they are subject to the same rules as other health plans; in other words, they will lose their grandfathered status if they make any of the substantial changes described above. Retiree-only and “excepted health plans” such as dental plans, long-term care insurance, or Medigap, are exempt from the Affordable Care Act insurance reforms.
Projections of Employer Plans Remaining Grandfathered, 2011-2013
There is considerable uncertainty about what choices employers will make over the next few years as the market prepares for the establishment of the competitive Exchanges and other market reforms such as new consumer protections, middle-class tax credits and other steps to expand affordabilty and choice for millions more Americans. This rule estimates the likely decisions of employers based on assumptions and extrapolations of recent market behavior, including the decisions by employers to change their health plans in 2008 and 2009. The table below depicts the results of this analysis:
Type of Plan
Employer Plans Remaining Grandfathered
Allowable Percent Change in Co-Payments from 2010
Medical inflation* (4%) + 15% = 19%
Medical inflation* (4%3 = 12%) + 15% = 27%
Deductibles, copayments can increase faster than medical inflation over time
Low: 87% remain grandfathered
Mid-range: 82% remain grandfathered
High: 71% remain grandfathered
Low: 66% remain grandfathered
Mid-range: 55% remain grandfathered
High: 36% remain grandfathered
Large plans are more stable and often self-insured.
Regulation permits plans to make routine changes needed to keep premium growth in check.
Low: 80% remain grandfathered
Mid-range: 70% remain grandfathered
High: 58% remain grandfathered
Low: 51% remain grandfathered
Mid-range: 34% remain grandfathered
High: 20% remain grandfathered
Small businesses typically buy commercial insurance and frequently make changes in insurers and coverage.
Limited purchasing power and high overhead often force a trade-off between dramatic changes in benefits and cost sharing and affordable premiums.
* Assumes medical inflation at 4%
The “low” percentage is based on the mid-range percentages plus plans that could stay grandfathered with small premium changes.
The “mid-range” percentage is based on assumptions of the number of plans that would lose their grandfathered status if they made changes consistent with the changes that they made in 2008 and 2009 that would not lead to premium increases.
The “high” percentage assumes that some plans would not be able to make the adjustments to employer premium contribution they would need to keep premiums the same while keeping their other cost-sharing parameters within the grandfathering rules. The estimates in this case assume these plans will choose to relinquish their grandfathered status instead.
Choices in 2014 and Subsequent Years
In 2014, small businesses and individuals who purchase insurance on their own will gain access to the competitive market Exchanges. These Exchanges will offer individuals and workers in small businesses with a much greater choice of plans at more affordable rates – the same choice as members of Congress. In fact, the Congressional Budget Office (CBO) has estimated that, on an apples-to-apples basis, premiums will be 14- 20 percent lower than they would be under current law in 2016 due to competition, lower insurance overhead, and increased pooling and purchasing power. Small businesses also will have more affordable options. CBO has estimated that a family policy for small businesses would be available in the Exchanges at a premium that is $4,000 lower than under current law in 2016.
These reduced premiums do not take into account the tax credits available to small businesses and middle-class families to help make insurance affordable. These additional new choices may further lower the likelihood that small businesses workers will remain in grandfathered health plans. Consumers insured through large employers are more likely to remain in grandfathered plans in 2014 and beyond.