The Affordable Care Act of 2010 (the “ACA”) is one of the most complex pieces of legislation ever enacted by Congress. Nonetheless, within the morass of that very complicated legislation, there is a relatively straightforward rule applicable to “Grandfathered” Health Insurance Plans. Basically, under the ACA, a group health insurance plan in existence as of March 23, 2010, is exempt from many (but not all) of the ACA’s requirements. If, however, the employer enters into a “new” health insurance plan after March 23, 2010, then all the ACA’s requirements apply to the employers’ health insurance plan. Seems pretty straightforward, right? Well, even the relatively simple legal principles become complicated in the right (or wrong) circumstances. This blog post evaluates a specific situation where what should be a straightforward application of the ACA’s grandfathering rules becomes….not so straightforward; and also illustrates the relationship between legal requirements, and the interplay of legal options and practical considerations imposed by group health insurance carriers.
The Employer – Dental Associates of Florida, D.M.D., P.A.
The case study that is the subject of this blog post is a Florida dental practice called “Dental Associates of Southwest Florida, D.M.D., P.A.” (This is NOT its real name, of course). Dental Associates of Southwest Florida, D.M.D., P.A. (“Dental Associates”) has just been established by a young, relatively recent doctor of dental medicine whom we shall call “Dr. Julie” (also not her real name). Dr. Julie has an undergraduate degree in chemistry, and has always been interested in dental polymers. So, in addition to practicing as a general dentist, Dr. Julie also establishes a small laboratory in which she develops and creates dental crowns for her patients that require such implements.
At first, Dr. Julie’s dental laboratory is relegated to a small office in her practice’s building with one assistant. Gradually, however, the dental laboratory expands to another office in Dr. Julie’s building with another two lab technicians. Then, several years later, office space becomes available to Dr. Julie across the street, and she leases this office space and hires yet another two more lab technicians. Soon other dentists in Dr. Julie’s geographical area become aware of the remarkable stability, life-span, and chemical properties of Dr. Julie’s dental crowns. One of her colleagues says to her at a local dental reception, “Your dental crowns are the Stradivariuses of dental crowns! Can I start ordering them for my own patients?” “What’s a Stradivarius?” Dr. Julie asks. (Remember, she was a chemistry major, not a music major.) In any event, once the confusion is cleared up, Dr. Julie is more than happy to sell her dental crowns to other dentists for the right price …. and so … well, you get the idea.
Historically, throughout the development of Dr. Julie’s dental crown laboratory she has treated the dental laboratory employees as employees of Dental Associates. This has been quite understandable. It would have created administrative burdens on her practice to establish a separate corporation for the dental laboratory’s activities and also separate benefit plans for those employees. But now, the number of employees who are working in the dental laboratory has expanded so much, and the revenue component also correspondingly grown. In addition, Dr. Julie has begun to receive inquiries from larger dental laboratory companies about acquiring her dental crown business. Wouldn’t it be easier for cost allocation purposes, and a potential sale of the dental laboratory business, to transfer all the assets and employees of the dental laboratory to a separate corporation? Of course it would. So, Dr. Julie establishes a separate entity she calls “Dental Laboratories of Southwest Florida, Inc.” (“Dental Laboratories”). But then Dr. Julie starts examining options for health insurance coverage for her Dental Laboratory employees, and that is where the situation becomes more complicated.
Grandfathering Rules and “New” Health Insurance Plans
Dr. Julie’s health insurance plan for Dental Associates was established before March 23, 2010, and she has maintained it as a grandfathered plan. All of her laboratory employees have participated in the Dental Associates’ Plan since their hire dates.
However, if Dr. Julie establishes a plan now for her Dental Laboratories’ employees, that plan will not be a grandfathered plan because it will subject to all the ACA requirements as a new plan. As Dr. Julie looks at the premiums for a health insurance plan for Dental Laboratories, she finds that an ACA health insurance plan will cost considerably more than her grandfathered plan. So, what if Dr. Julie added her new company, Dental Laboratories, as an additional employer to her existing health plan as part of her annual renewal process? After all, her laboratory employees have already been participating under the existing health plan. Merely adding Dental Laboratories to the current health plan will not change any of the employees’ benefits. But it will allow separate billing of premiums to Dental Laboratories, and achieve the objective of separate accounting of income and expenses.
In order to accomplish her objective, Dr. Julie will need to satisfy one critical component of the grandfathering regulations, namely this:
If an employer …. enters into a new policy, certificate, or contract of insurance after March 23, 2010 (because, for example, any previous policy, certificate, or contract of insurance is not being renewed), then that policy, certificate, or contract of insurance is not a grandfathered health plan with respect to the individuals in the group health plan.”
So, under the regulations, Dr. Julie should be okay with adding Dental Laboratories as an additional employer to her existing health plan as part of her annual renewal with her insurance carrier. The regulations do not refer to “new” employers; just “new” polices. And the regulations specifically state that renewals of existing policies are fine. Furthermore, Dr. Julie isn’t violating any of the grandfathering requirements by making any impermissible changes to the actual benefit features.
Well, unfortunately, nothing is ever easy. Dr. Julie contacts her insurance carrier about adding Dental Laboratories as an employer to her health plan. But her insurance carrier informs Dr. Julie that the insurance carrier can only do so under a new insurance policy. Why? “That’s just the way we handle additional employers – we have to issue a new insurance policy” the carrier responds. There is no legal reason for the carrier’s approach; it is just part of the carrier’s internal procedures. The problem for Dr. Julie is that, even though the regulations would permit her to add Dental Laboratories as an additional employer as part of a renewal process, the fact that the insurance carrier’s internal procedures require the issuance of a new policy takes Dr. Julie out of grandfathered plan status. Thus, Dr. Julie is left with the choice of either continuing to cover her laboratory employees under her current plan and defeating her objective of having separate benefit plans for each of her two corporations, or paying increased premiums for a separate pan for Dental Laboratories -neither of which is desirable from her standpoint.
The Lesson: Regulations Do Not Exist in Isolation
Unfortunately, the lesson of this case study is that although laws and regulations will often provide options, the interplay between the law and business procedures and policies of service providers will be critical. In the employee benefits area, in particular, what a service provider can make available to a client will not necessarily conform to the full range of legal options. Analysis of the law is unfortunately only half the battle, and maybe even less. Legal principles do not exist in a vacuum; and the role of the service provider will often be a critical, and potentially determinative one.
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