Arizona Grandfathered Health Insurance Policies

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…my mother lives in Texas, but I thought I would ask you (a question about health insurance,) since the
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Houston, TX
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“Mike,

You have provided professional & friendly guidance to our family for so many years and I hope you know how much we appreciate your help!!

Sincerely,

Charlotte”

Grandfathered Health Insurance Policies:

Many insured have grandfathered health insurance policies, but what does this mean?

A grandfathered health plan is defined in the Patient Protection and Affordable Care Act (Obamacare,) as any employment-based policy, whether insured or self-insured, and any individual insurance policy that was in existence on March 23, 2010, and is in force today.

Grandmothered Health Insurance Policies:

Grandmothered transitional plans may remain in force until April 30, 2017. After this date the policyholder must switch to an ACA qualified plan.

Historically, membership in a typical individual health insurance plan starts to drop as people switch to newer plans being offered in the market, or to plans with richer or fewer benefits, or enroll in a group plan through an employer, etc. This attrition of members, along with the increase of health care costs in general, increases the cost of insurance for the remaining members. The sickliest members could not switch plans in most cases due to underwriting restrictions, and the natural aging of the remaining members also contribute to the increase in premiums. A portion of these costs are offset by new members joining the plan, but not at the numbers needed to keep premiums from increasing each year.

The PPACA was signed into law on March 23rd, 2010. On this date health insurance policies in existence at the time, (known as grandfathered plans today) could no longer be sold to new members, which are a vital component in keeping premiums in check. It has been several years since grandfathered plans were prohibited from enrolling new members. With fewer people in the risk pool due to attrition, no new members being added, and higher medical expenses for those that remain, it is easy to see why premiums for these grandfathered policies will increase faster than the rates for new policies being offered today. The more quickly the premiums rise on grandfathered plans, the more quickly members will continue to leave the plan, raising rates even higher for those that remain, a vicious financial death spiral of sorts in the making. Very soon it will likely be less expensive to purchase a PPACA approved plan than to keep a grandfathered plan, and for many that time has already arrived.

Benefits of keeping a Grandfathered plan include the possibility that the premium is still lower than a PPACA plan. Another benefit is that the Grandfathered plan likely offers a larger network of providers than a PPACA plan.

Drawbacks in keeping a grandfathered plan:
1.) Federal subsidies will not be available to you, (if qualified.)
2.) Preventive care may be more costly due to existing deductibles and co-pays, costs not allowed with a PPACA approved plan.
3.) Fewer covered benefits compared with a non-grandfathered plan.

An important point to keep in mind is that if you are insured with Blue Cross and Blue Shield of Arizona, you are insured with a non-profit organization. They have no fiduciary responsibility to maximize profits for shareholders, as there are no shareholders. Whether for profit or non-profit, all insurers must now spend at least 85% of group premiums and 80% of individual premiums collected on claims. Any premium amount collected over this percentage must be returned to the policyholder. In the first year many received checks averaging $157.00. Today, rebate checks are basically non-existent, as health insurance companies have adjusted premiums to stay within the federal guidelines. This does not mean that the cost of care has been reduced, or that premium increases are a thing of the past, far from it.
After spending 80%-85% of premiums collected on claims, health insurance companies, like any other business, have expenses such as salaries and benefits for tens of thousands of employees, advertising, maintenance of buildings, mailing costs, software, security, commissions, and the list goes on.
Like many businesses throughout the country, health insurers, brokers, and suppliers have cut staff, primarily due to the additional taxes included in section 9010 of the PPACA starting in 2014. (Broker commissions were cut by 50%-75% starting in 2011 due to loss ratio requirements of the PPACA, forcing lay-offs, not the additional tax exposure others in the industry face.) HealthNet announced laying off all of their individual policyholder representatives, the small group division taking over their responsibilities. Cigna announced in November of 2012 that they laid off 1300 employees. Many other companies involved in the health care industry have cut jobs, citing these additional taxes associated with the PPACA as the main reason for the lay-offs. Medtronic, Stryker, Boston Scientific, Welch Allyn, and Dana Holding Corporation, all medical device manufacturers and suppliers, have laid off over 7000 employees in total to date, with thousands more having their hours reduced, or jobs moved overseas. More recently, BCBSAZ lost tens of millions of dollars in 2015 in the individual market, though they remain a financially strong organization with an A+ rating. 2016 is the year the top five insurers will likely become three, buying each other to better control costs. The downside of course with less competition is the reduction in provider network size, and increased premiums.

“If you like your health care now, wait until it’s free,” the saying goes. With premiums having dramatically increased beginning in 2014 for many Americans, and continuing today, where do all these premium dollars go?

The large premium increases are due to several factors: As of 1/1/14, health insurance companies must accept all applicants during open enrollment and cannot charge more, or exclude coverage, for most pre-existing conditions, or adjust premiums based on gender. In addition, several very costly medical conditions and procedures must be fully covered on group, individual, and family plans in 2014, such as maternity coverage, substance abuse treatment, and unlimited mental health benefits. Preventive services such as free colonoscopies, free mammograms, free contraceptives, free breast pumps, and free physicals now have no deductible or co-pays. The PPACA requires that deductibles, co-pays, and co-insurance amounts be lower in general, raising the cost of the plans. Higher deductible options are not allowed, such as those over $7000.00. Lastly, health insurance companies may no longer charge older members more than three times the average amount charged younger policyholders. (Historically, insurers charged five to six times the amount charged younger members.) This has caused dramatic premium increases for younger policyholders, and these members are the least likely to be able to afford such an increase, subsidy included or not. What remains to be seen over the next few years is if younger members will continue to drop their coverage, or not buy coverage due to the cost, and simply pay the IRS fine instead… resulting in higher premiums for those with health insurance.

If you have a grandfathered plan today, or would like to find out if you have a grandfathered policy, please call or email Mike to discuss whether switching to a non-grandfathered PPACA approved plan will be worthwhile at this time, or possibly in the near future, 602-405-8769. In 2016, if you have a Grandfathered plan, it is likely that you should keep your existing coverage unless you believe that federal financial assistance may be available to you.