Increased Health Insurance Rate and Health Plan

Everybody is getting large health insurance rate increases this year. The size of the increase is making many people look for alternative health insurance plans. One type of plan is being especially hard hit with double digit increases, and those are grandfathered health plans. We’ll cover what’s happening and what you can do to protect yourself from the rate increases that are taking place.

You may be thinking, “What’s a grandfathered health insurance plan?” The answer is, if you have a health insurance plan that was in place on March 23rd of 2010, and you haven’t made any changes to your plan, you’re still in the same plan, then you have a grandfathered health insurance plan. If you’ve been in the same plan for 5, 10, 15 years, then you have a grandfathered health insurance plan.

Grandfathered plans have some special exemptions and characteristics, so we need to go over those in a little bit more detail. The easiest way to do that is to tell you a story about a recent client. That client’s name is Barry.

Barry and his wife are 52, and they have two daughters; one 21, and one that’s 16. Barry shared with me that their letter basically told them their new rate was going up almost 24% and they would be paying $1389 a month. They were in an Anthem PPO Share 5000 plan, and they’d been in that plan so long, he didn’t even remember when they actually started it. The rates had increased progressively from one year to the next.

But this year, the rates were finally high enough that he said he didn’t want to pay that much anymore, he wanted to find an alternative. So he called his agent, and then he called Anthem Blue Cross directly. In both cases, they told him to “just ride it out” and wait to see what happened in 2014, after the Affordable Care Act kicked in. That wasn’t an answer Barry was willing to live with because he wanted a solution today.

So when Barry called he shared the above information and his fear that he would have to pay higher rates. When queried about the health characteristics of his family, he said they were all healthy, and that other than one or two colds, they did preventive care and that was pretty much it. Their current plan was very rich in benefits that they weren’t making use of, based on what he’d described.

After running a set of quotes for the family, and scanning all of the different options, it became clear that one of the best options for them was the Health Net PPO Advantage 3500 plan. The reason is because it gave them two office visits for a simple copayment, and then all of the preventive care was free. That’s not something that they had in their PPO Share plan. They actually have to pay for their preventive care as part of their deductible costs in that plan.

The monthly premium on that Health Net plan was only $480 a month, so they were saving a little over $900 per month, or $10,900 per year. Barry really liked that. But he said, “There’s a big difference in benefits between these two plans. Can you show me a plan that’s a little bit closer to the benefits we have in our grandfathered plan, but at a lower cost?”

So looking through the list again, the closest match was the Cigna Open Access 5000/100% plan. It has a $5000 deductible and has unlimited office visits, which is very similar to the plan they currently have. But the monthly premium is only $928 a month. They could still save almost $500 per month, and $5500 in savings over the course of a year. Now, I don’t know about you, but saving $5500 to $10,900 is a pretty substantial amount of money for any family. Barry loved the heck out of that.

But he was still a little bit concerned. He said, “I like those plans, and I’m glad that there is an option that looks like it could save us a ton of money. But what am I giving up if I leave this grandfathered plan?” He needed to know what the advantages and disadvantage of a grandfathered plan are.

Advantages Of Grandfathered Health Plans

The advantage is that it’s outside of the Affordable Care Act. It’s not regulated, so it doesn’t have to have all the essential health benefits, and it doesn’t have to add all the extra benefits required by the Affordable Care Act. So hopefully, it’s going to have a lower cost. But that’s the only advantage of a grandfathered plan.

Disadvantages Of Grandfathered Health Plans

There are a number of disadvantages to grandfathered plans. First of all, they don’t free preventive care. For a family that has people over 50, that can actually be pretty substantial when you start looking at colonoscopies once every few years or so.

Secondly, in all health insurance plans, when it initially starts and gets to its largest size, there’s a pool of people that are inside of that plan. The premiums that the pool of people pay, covers all of the medical expenses for everyone in the plan. But over the years, as people leave that plan and move to lower cost plans or plans that better fit what they currently need, the number of people in the plan shrinks. This the typical lifecycle of a health insurance plan. At some point, the people that are left in the plan are either people that just never bothered to leave, or people that have health conditions that prevent them from being able to leave the plan. At that point in time, the rates for the plan start to climb much faster than the rates in other plans.

The last nail in the coffin for grandfathered plans is that because it is outside of the Affordable Care Act, come 2014 when the rates go up yet again, people on the grandfathered plans are not going to be able to qualify for subsidies. So they’re going to get no financial assistance at all, they’re going to have to pay for all their preventive care, and the rates on their grandfathered plan will increase again, so it probably isn’t going to make a whole lot of sense to stay in the old plan.

At that point in time, Barry was pretty much ready to change plans. He understood why his plan was going up so much; he liked the fact that there was a solution for him; and he actually started to get kind of frustrated. He said, “My agent and the Anthem Blue Cross representative both told me I should ride this out. Why did they do that? That doesn’t make any sense.” Not wanting to say something bad about somebody else, I told him that if he had asked the same question a year ago, I would’ve said to let it ride. Just stay in there and wait for more information, because nobody knew what the Affordable Care Act plans were going to be, and nobody knew what the rates were going to look like on the new plans.

However, a lot has changed since January of last year. During the summer and fall, the Affordable Care Act “metal” plans were described. Not the specific benefits, but what they’re going to look like in terms of benefit levels. The insurance companies, have given indications about what the pricing is going to look like for these new Affordable Care Act plans. What they’re saying is that the average cost is probably going to be anywhere from $300 to $500 per person each month. So for a family like Barry’s, it’s anywhere from $1200 to $2000 per month. The cost of the Affordable Care Act plans and his current grandfathered plan are pretty much even right now, and his plan is going to go up even more next year.

Barry decided there’s really no benefit to staying in his grandfathered plan, because he’s not going to get any subsidy help, and he’s not going to get free preventive care in the grandfathered plan.

The end of the story is that Barry’s family was accepted, and they were going to take a dream vacation this year, using some of that $11,000 they’re no longer paying to a health insurance company.

As you can see from this case study, it’s really important that you stay on top of what’s happening with the Affordable Care Act, because things are going to start moving very quickly this year. States and the feds are beginning to quickly build the exchanges, and the insurance companies are creating the new metal plans to go inside and outside the exchanges. Knowing what steps you should take to position yourself and your family to be able to make a smooth transition to the new Affordable Care Act plans is important.

If you have a grandfathered health plan there are some exemptions that you have to consider, along with determining where your grandfathered plan is in its lifecycle, to determine if it makes sense to stay with the plan you currently have, or if making a change is a better option. There’s no sense going down with the ship if you don’t have to.

Tim Thompson is the founder of SPF Insurance Services in San Diego, CA.

At SPF Insurance, we’re Affordable Care Act experts. We analyze the health insurance plans from the major California insurance companies in making our recommendations. We analyze the regulatory changes to determine what strategies our clients should use to protect themselves. You won’t find boilerplate information at the SPF website. For more information about health insurance rate increases, see the post “Health Insurance Rate Increases A Regulatory Tsunami”.