/  About Us / Details
April 4, 2011

HRB 33 - Grandfathered Status and ERRP Updates

Released April 4, 2011I Download as a PDF

April 4, 2011 --  Agencies Issued New FAQs:  Grandfathered Status

The Agencies (DOL, HHS and IRS) have recently issued some additional sub-regulatory guidance relating to the Patient Protection and Affordable Care Act in the form of Frequently Asked Questions.  These 6 new FAQs relate primarily to determining grandfathered status as follows:

FAQ#1 - Elimination of a Benefit Option.  One of the issues that has raised many questions relates to the matter of when terminating a benefit option would cause a plan to lose grandfathered status.  According to the interim final grandfathered regulations issued in June, 2010, (see CBIZ Health Reform Bulletin, Grandfathered Health Plans Rules), grandfathered status is lost if a benefit option is eliminated and the employees are moved to another plan option.  There is an exception to this rule if there is a ‘bone-fide employment based reason’ for terminating the plan option.  According to the new FAQ, examples of events that would not cause loss of grandfathered status include:

  • When a benefit package is being eliminated because the issuer is exiting the market or no longer offers the product to the employer, such as failure to satisfy a minimum participation requirement;
  • When low or declining participation by plan participants in the benefit package makes it impractical for the plan sponsor to continue to offer the benefit package;
  • When a benefit package is eliminated from a multiemployer plan, as agreed upon as part of the collective bargaining process; or
  • When a benefit package is eliminated for any reason, and multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred.

This list is not exhaustive; but rather is by way of example only.

FAQ#2 - Change in Drug Formularies.  This FAQ addresses the issue of when changing or modifying tiers of drug coverage will cause loss of grandfathered status.  The FAQ affirms that if a plan has multiple tiers of drug coverage, and if a drug subsequently changes status, moving that drug from one tier to another tier will not cause loss of grandfathered status.  The example given relates to a drug for which there is no generic option.  If later, a generic option becomes available, moving that drug to a different tier will not cause loss of grandfathered status.

FAQ#4 and 5 – Date of Losing Grandfathered Status.  Two of the FAQs relate to when grandfathered status is lost.  Both FAQs affirm that if a plan is amended in such a way that would cause loss of grandfathered status, the loss of grandfathered status occurs on the effective date of the amendment, not the date the amendment is adopted.

FAQ 6 – Change in Employer Contribution.  This FAQ addresses change in employer contribution as it relates to loss of grandfathered status.  Grandfathered status is lost if the employer contribution rate decreases by more than 5 percentage points.  If the employer contribution is determined based on a formula, grandfathered status is lost if the formula changes in such as way as to cause the employer contribution to change by more than 5 percentage points.  Grandfathered status is not lost merely because the cost of coverage changes

ERRP Update: Early Retiree Reinsurance Program to Cease Accepting Applications

In other news, the Department of Health and Human Services (HHS) has indicated that they will stop accepting applications for the Early Retiree Reinsurance Program (ERRP), effective May 6, 2011.  The ERRP is designed to encourage employers to establish or maintain health coverage for their early retirees aged 55-64, and their eligible spouses and dependents.  The purpose of the program is to provide reimbursement of certain expenses to plan sponsors of group health plans that provide retiree coverage.

HHS has determined that the five billion dollar funding allocated to the Program will be exhausted, based on the needs of applicants up to this point.  The law allows HHS to cease receiving applications when it believes the funds will be exhausted.  A plan sponsor who would like to apply to the ERRP must submit its complete application no later than 5PM ET on May 5, 2011.  Applications received after May 5, 2011, will not be accepted.  The Program expires January 1, 2014.

Background CBIZ Health Reform Bulletins on ERRP:



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.

Insights in Your Inbox
Find Us
  • OR