HRB 6 - Grandfathered Health Plans Rules
Released June 16, 2010I Download as a PDF June 16, 2010
-- One of President Obama’s health care reform commitments has been, “If you like your health coverage, you can keep it
.” The “grandfathered” health plan rules, contained in the Patient Protection and Affordable Care Act (PPACA), are ostensibly the mechanism for accomplishing this.
On June 14, 2010, the Departments of HHS, Labor, and Treasury (“Departments”) issued interim final regulations, a Fact Sheet, and FAQs, that further define grandfathered health plans, in both the group and individual market.
What are Grandfathered Group Health Plans?
The primary intent of preserving the grandfathered status of a group health plan is to provide the ability to maintain existing coverage. To be grandfathered, an insured or self-funded group health plan must have been in existence on March 23, 2010, and it must cover at least one individual. Certain provisions of the PPACA do not apply to grandfathered health plans (see chart below). For a more detailed table of provisions applicable to grandfathered health plans, see the Department of Labor’s Table on Applicability of Provisions to Grandfathered Plans.
Effect of PPACA Provisions on Grandfathered Health Plans
- Ban on preexisting condition exclusions for children under age 19 (applies to anyone beginning 1/1/14)
- Ban on discrimination based on health status
- Ban on excessive waiting periods
- Ban on lifetime or annual limits
- Ban on rescissions
- Extension of dependent coverage until age 26 (but before 2014 plan years, only if the adult child is not eligible for other employer-sponsored health plan coverage)
- Development and utilization of uniform explanation of coverage documents and standardized definitions
- Bringing down cost of health care coverage (for insured coverage)
- Coverage for preventive health services
- Independent appeals process
- Ban on discrimination based on salary
- Choice of primary care provider
- Coverage of clinical trials
The grandfathered group health plan rules, and generally, the insurance provisions of the health reform law, do not apply to:
- Retiree-only plans, those plans covering no active employees;
- Stand-alone dental or vision plans; and
- Most flexible medical spending accounts.
The regulations make it clear that grandfathered status is determined on a benefit package-by-benefit package basis. Therefore, an employer can have some plans that are grandfathered, and others that are not.
What Causes a Group Health Plan to Lose Grandfathered Status?
The regulations provide guidance on what would, or would not cause a plan to lose grandfathered status. Grandfathered health plans are permitted to make routine changes to their plan design in order to keep their status, including:
- Adding new dependents or employees at open enrollment or special enrollment events;
- Imposing cost adjustments to keep pace with medical inflation;
- Adding new benefits;
- Making modest adjustments to existing benefits;
- Voluntarily adopting new consumer protections under the new law, or
- Making changes to comply with State or other Federal laws.
Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits, or increase costs. The types of changes that could cause a group health plan to lose grandfathered status include:
- Eliminating all, or substantially all, benefits to diagnose or treat a particular condition. For example, if a plan provides benefits for a particular mental health condition, the treatment for which is a combination of counseling and prescription drugs, and the plan subsequently eliminates benefits for counseling.
- Increase in percentage of a cost-sharing requirement, such as coinsurance, above the level at which it was on March 23, 2010. For example, amending the plan on or after March 23, 2010 to increase a coinsurance amount from 20% to 25% for inpatient surgery.
- Increase of a fixed-amount cost-sharing requirement, other than co-pays, such as a $500 deductible, or a $2,500 out-of-pocket limit, by a total percentage measured from March 23, 2010, that is more than the sum of medical inflation and 15 percentage points.
- Increase in co-pays by an amount that exceed the greater of:
- A total percentage, measured from March 23, 2010, that is more than the sum of medical inflation, plus 15 percentage points, or
- $5 increased by medical inflation measured from March 23, 2010.
- Amending the plan on or after March 23, 2010 to increase co-pays from $30 per office visit for specialists to $40. Based on the greatest value of the overall medical care component of the CPI-U, this would not cause the plan to lose grandfathered status. However, increasing the co-pay from $30 to $45 effective for a later plan year could cause a plan to lose grandfathered status because the increased amount would exceed the medical inflation amount.
- Amending the plan on or after March 23, 2010 to increase the co-pay from $10 per office visit for primary care providers to $15. The $5 increase would not cause the plan to lose grandfathered status because the $5 amount is less than the medical inflation amount.
- Decrease in contribution rate by employer or employee organization based on a percentage or formula towards the cost of any tier of coverage for any class of similarly situated individuals by more than five points below the contribution rate on March 23, 2010.
Example: As of March 23, 2010, a self-insured group health plan provides two tiers of coverage: self-only and family. The employer contributes 80% of the total cost of coverage for self-only, and 60% of the total cost of coverage for family. Subsequently, the employer reduces the contribution to 50% for family coverage, but keeps the same contribution rate for self-only coverage. In this example, the decrease of 10 percentage points for family coverage in the contribution rate based on cost of coverage causes the plan to cease to be a grandfathered health plan. The fact that the contribution rate for self-only coverage remains the same does not change the result.
- Change in annual limits by group health plans in existence on March 23, 2010, such as:
- Addition of an annual limit on the dollar value of benefits;
- Decrease in limit for a plan with only a lifetime limit; or
- Decrease in limit for a plan with an annual limit.
- Changing Insurance Companies. If an employer decides to buy insurance for its workers from a different insurance company, the new plan would not be considered a grandfathered plan. but for a self-funded plan, this does not include changing plan administrators.
Factors not specifically included in the list of restrictions include:
- Changing premium;
- Changing plan structure, such as from major medical to health reimbursement account;
- Changing funding mechanism, such as from insured to self-funded;
- Changing provider networks; or
- Changing drug formularies.
The Departments have requested comments on these factors, and ultimately, these issues may be addressed in future guidance.
The regulations provide some transitional relief for plan changes contemplated, but not adopted prior to March 23, 2010; specifically, a plan will not lose grandfathered status if changes are pursuant to:
- A legally binding contract entered into on or before March 23, 2010;
- A filing on or before March 23, 2010 with a State insurance department; or
- A written amendment to a plan that was adopted on or before March 23, 2010.
Special transitional rules apply when changes are adopted by a plan between PPACA’s enactment date and prior to issuance of the regulations.
Specifically, these regulations provide employers and insurers with a grace period within which to revoke or modify any changes adopted prior to publication of the regulations (June 17, 2010) where the changes might otherwise cause the plan to lose grandfathered status. Under this rule, grandfather status would be preserved if the changes are revoked, and the plan or coverage is modified, effective as of the first day of the first plan or policy year beginning on or after September 23, 2010.
Collective Bargaining Agreements
Insured plans subject to collective bargaining agreements (CBA) ratified before March 23, 2010 will be treated like any other grandfathered plan once the CBA expires. What this means is that all grandfathered CBA plans must comply with the market reforms applicable to non-CBA grandfathered plans without a delayed effective date.
New Recordkeeping and Disclosure Requirements
The regulations impose new recordkeeping and disclosure requirements:
To preserve the status as a grandfathered health plan, plan sponsors are required to:
- Maintain records documenting the terms of the plan or insurance coverage in connection with the coverage in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan; and
- Make such records available for examination by the Departments and participants, upon request.
Grandfathered health plans are required to include a statement in any plan materials provided to participant and beneficiaries describing the benefit provided under the plan, and that the plan is intended to maintain its grandfathered status. The regulations provide model language that can be used to satisfy this disclosure requirement:
This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.
Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information].
[For ERISA plans, insert:
You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform. This website has a table summarizing which protections do and do not apply to grandfathered health plans.]
[For individual market policies and nonfederal governmental plans, insert:
You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]
These interim final regulations become effective on June 17, 2010. Comments on these regulations may be submitted to the Departments within 60 days of the effective date (August 16, 2010).
For purposes of enforcement, the Agencies indicate that they will take into account good faith efforts to comply with the requirements imposed under these rules, and may disregard changes to plans that only modestly exceed those changes described in the regulations.
What Should An Employer Do?
An employer/plan sponsor must weigh the benefits of retaining grandfathered status; thus, being relieved of certain plan changes, as described above, versus the flexibility that derives from being able to make plan changes. In determining how important it is to preserve grandfather health status, employers will want to consider what it gains or loses by virtue of implementing changes. Employer/plan sponsors can decide to:
- Continue offering the plan or coverage in effect on March 23, 2010, with limited changes, and thereby retain grandfather status; or
- Significantly change the terms of the plan and comply with the PPACA provisions from which grandfathered health plans are excepted.
Author: Karen R. McLeese, Esq.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations.
This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.
As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.