Many small employers that offer health insurance have been skirting complete Patient Protection and Affordable Care Act (PPACA) compliance by using a little-known caveat: the Transitional Policy. This policy allows state insurance commissioners to permit the sale of health plans that are not fully compliant with PPACA’s market reforms in the individual and small group markets.
Transitional health plans differ from the more commonly known grandfathered plans in two major ways. First, grandfathered plans had to be in effect before the date of PPACA’s enactment, March 23, 2010, while transitional plans went into effect between March 23, 2010 and December 31, 2013. Second, grandfathered plans have no termination date. Grandfathered plans may continue to exist so long as there are no major plan design or cost changes. When PPACA was first passed, transitional plans were to expire at the end of 2014.
In March 2014, the Centers for Medicare & Medicaid Services (CMS) extended transitional plans until the end of 2016 in an effort to facilitate a smooth transition to PPACA-compliant plans. During 2016, with the end of transitional plans up in the air, CMS decided to extend the transitional plans once again until the end of 2017.
On February 24th of this year, CMS extended the end date for transitional plans again until the end of 2018. As mentioned in a recent Forbes article, the continuation of these plans has helped some employers keep health insurance costs low, while others have found cheaper rates through PPACA plans.
This will not come without some scrutiny as it may contribute to losses for some insurers on the individual exchanges. Amy Gordon, a Chicago-based partner at law firm McDermott Will & Emery, recently said in an article for the Society for Human Resources Managers, that the CMS guidance "will likely anger insurers on the exchanges that are selling ACA-compliant plans, as well as individuals who have purchased ACA-compliant plans in lieu of non-ACA compliant plans." These insurers offered, and individuals purchased, these plans before the release of the news that transitional plans would be allowed to continue. Annual enrollment in exchange coverage for 2017 ended on January 31, 2017.
In prior years, small employers could extend the relief provided under the transitional policy by renewing early, but that is not an option this year. Under the current policy, all transitional plans must end by December 31, 2017. Contact our team if you have questions about transitional plans.