Employers are now able to change insurers and still maintain grandfathered status, according to new rules issued November 15, 2010 by the IRS, DOL and HHS.  Under the original regulation, a plan could lose its grandfathered status if employers changed issuers.  The new amendment to the interim final rule allows all group health plans to switch insurance companies and shop for the same coverage at a lower cost while maintaining their grandfathered status, so long as the change does not result in significant cost increases, a reduction in benefits or other changes in the original rule.  The amendment applies only to changes that are effective on or after November 17, 2010.  It also only applies in the group health market so any change in insurer for individual policies will result in the loss of grandfather status. 

The fact sheet released by HHS provides a helpful snapshot of the amendment. 

What does this mean to you? 

There is debate over the significance of this amendment.  Some feel the amendment is a big win for employer groups and their ability to shop insurance carriers at renewal. 

Others feel the amendment will have a minimal impact on the ability of employer groups to maintain grandfathered status for various reasons.  One reason is the change may have come too late for some group health plans that renewed prior to November 17, 2010.  Another concern arises with the employer’s obligation when switching carriers to provide documentation to the new insurer of plan terms from the prior carrier.  A third concern lies in the lack of clarification of “reduction in benefits” that can result in an employer losing grandfathered status.  Unfortunately, the process of changing carriers includes more hurdles than just selecting comparable deductibles, out-of-pocket amounts and co-insurance.  How will differences in networks, prescription drug formularies, and covered items under office visit co-payments be treated?

What I find even more interesting is the softening of this administration’s position since the election.  Is this a sign that the administration has come to realize the strong-arm tactics they’ve exercised to this point are now going to come under attack?  Leading house republicans have indicated they intend to call Secretary Sebelius before various committee hearings, which the current administration has blocked.  Is it possible that being accountable may have some influence on this administration’s posturing against the insurance industry?   We’ll see, but it seems to be apparent at this time that the outcome of the election will begin to reshape the direction of health reform legislation.

I encourage you to comment on how significant you feel this amendment will be for businesses.