Guidance about “grandfathered” group health plans was issued jointly by Federal agencies on June 17, 2010 (the “Regulations”). Our previous bulletin (www.bricker.com/documents/publications/1922.pdf) on this topic explained that a grandfathered plan is not required to comply with some provisions of the Patient Protection and Affordable Care Act (the “Act”). This bulletin reports on the Regulations, including requirements for group health plans to retain their grandfathered status and ways that a plan may lose its grandfathered status, thereby becoming subject to all requirements of the Act. (The “Plan” refers to group health plans.)
Administrative Requirements for Grandfathered Plans
The regulations impose two administrative requirements on grandfathered health plans. The Plan or health insurance issuer must:
- Include in all Plan materials that describe benefits a statement that the Plan believes it is grandfathered and contact information for questions and complaints. The Regulations provide model language that satisfies this requirement.
- Maintain records documenting the terms of coverage that were in effect on March 23, 2010, and any other documents necessary to clarify the grandfathered status, including documents related to changes to the Plan. These records must be available for inspection.
Changes that Do Not Jeopardize Grandfathered Status
The following changes will not jeopardize a plan’s grandfathered status:
- Enrolling new employees
- Enrolling family members of current or new employees
- Plan changes made to comply with state or federal law
- Plan changes made to voluntarily comply with the Act
- Plan changes that expand or increase benefits
- For self-funded plans, changing third party administrator.
- Changes that took effect after March 23, 2010, to the terms of the Plan if those changes were:
- Pursuant to a legally binding contract entered into before March 23, 2010
- Pursuant to Plan amendment adopted before March 23, 2010
- Made to the terms of a health insurance plan filed with the state insurance regulator prior to March 23, 2010.
Changes that Result in Loss of Grandfathered Status
A plan—whether insured or self-funded—will lose its grandfathered status if the plan sponsor or insurer does any of the following:
- Changes insurance company
- Eliminates all or substantially all benefits to diagnose or treat a particular condition. The elimination of benefits for any necessary element to diagnose or treat a condition is considered the elimination of all or substantially all benefits to diagnose or treat a particular condition.
- Reduces the employer contribution rate by more than 5% below the contribution rate in effect on March 23, 2010
- Increases a percentage cost-sharing requirement (such as coinsurance) above the level in place on March 23, 2010
- Increases fixed-amount cost-sharing requirements, other than co-payments, by a percentage that is more than the sum of medical inflation plus 15% (measured from March 23, 2010)
- Increases co-payments by an amount that exceeds the greater of:
- a percentage that is more than the sum of medical inflation plus 15%, or
- $5 (indexed to medical inflation measured from March 23, 2010)
Imposes or lowers annual or lifetime limits on the dollar value of benefits, as follows:
- If on March 23, 2010, the Plan had no overall annual or lifetime limit, the Plan imposes an annual limit
- If on March 23, 2010, the Plan had an overall lifetime limit, but did not have an annual limit, the Plan imposes an annual limit that is lower than the lifetime limit that was in place on March 23, 2010
- If on March 23, 2010, the plan had an annual limit, the plan decreases that limit.
Two provisions intended to prevent avoidance, or abuse, of grandfathered status are included in the Regulations.
- Mergers and Acquisitions. If the principal purpose of a merger, acquisition or similar business restructuring is to cover new individuals under a grandfathered health plan, the plan ceases to be a grandfathered health plan
- Change in Plan Eligibility. If an employer maintains two or more plans and transfers employees from one plan into another for purposes of reducing benefits and there is no legitimate employment-based reason for the transfer, the plan will lose its grandfathered status.
Good Faith Compliance and Grace Periods
The Regulations also provide that certain changes made between March 23, 2010, and June 17, 2010, that were made in good faith but do not comply with the Regulations, may not jeopardize a plan’s grandfathered status. And, a grace period permits employers and insurers to revoke or modify changes adopted prior to June 17, 2010 that would otherwise cause the plan to lose its grandfathered status.
Retiree-Only Plans and Excepted Benefits
Retiree-only and excepted benefits plans are not subject to the Act. The Regulations clarify that HHS does not intend to use its resources to enforce the requirements of HIPAA or the Act with respect to nonfederal governmental retiree-only plans or excepted benefits provided by nonfederal governmental plans. And HHS is encouraging states, which have authority to regulate insurance companies, not to apply the provisions of the Act to insurers issuing retiree-only plans or excepted benefits.