Interim final rules on grandfathered health plans recently issued by the U.S. Departments of the Treasury, Labor, and Health and Human Services clarifies the departments’ position with respect to the application of certain group health plan mandates to very small health plans, including retiree-only plans. Prior to health care reform, very small group health plans with less than two participants who are current employees on the first day of the plan year, were statutorily exempt from certain mandated benefit requirements applicable to group health plans under Part 7 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), Subtitle K of the Internal Revenue Code (Code) and the group health plan mandates in the Public Health Service Act (PHSA). This small group health plan exception has been widely interpreted to exempt retiree-only plans from these mandated benefit requirements. Through a series of conforming amendments, the small group health plan exemption was removed from the PHSA, which impacts insured plans and nonfederal governmental plans. Because the small group health plan exemption continued to exist in ERISA and the Code, there was some question as to whether the removal from the PHSA was intentional, and whether the U.S. Congress intended to also remove the exemption from ERISA and the Code. The preamble to the interim final rules clarified that the exemption continues to exist for self-insured group health plans under ERISA and the Code covering fewer than two participants who are current employees, such as retiree-only plans.
Acknowledging that there was no intent to treat insured plans or nonfederal governmental plans differently than self-insured group health plans under ERISA and the Code, the preamble states that the Department of Health and Human Services does not intend to use enforcement resources to enforce the health care reform or pre-existing Health Insurance Portability and Accountability Act (HIPAA) requirements with respect to nonfederal governmental retiree-only plans. The agencies also encouraged states not to exercise their enforcement authority to apply the group market provisions added by health care reform to retiree-only plans.