Q.1 What is a grandfathered plan?
A.1 A grandfathered plan is a group health plan or individual insurance policy that was in existence on March 23, 2010. These plans are able to take advantage of certain delayed effective dates for changes required by the health care reform law and, in other cases, the waiver of requirements for as long as grandfathered status is retained. This article focuses only on retaining grandfathered status. For more information about grandfathered plans, please see our previous article here.
Q.2 Can changes be made to the benefits offered under a grandfathered plan?
A.2 The elimination of all or any necessary element of a benefit to diagnose or treat a particular condition will cause a plan to lose grandfathered status. For example, eliminating counseling services previously offered under the plan to treat, in conjunction with medication, a particular mental health condition will result in the loss of grandfathered status. There does not appear to be a prohibition against increasing the types of benefits offered, subject to the cost limitations discussed below. Please see the previous grandfathered plan article for required changes to annual/lifetime limits. No new annual or lifetime limit may be added to a grandfathered plan without losing grandfathered status. Plans which previously imposed an annual limit may not decrease the dollar value of that limit. A plan with a previous lifetime limit may impose an annual limit on the dollar value of benefits as long as it is not lower than the dollar value of the lifetime limit on March 23, 2010.
Q.3 Can changes be made to who is covered under a plan?
A.3 Employees enrolled in the plan can add family members during open enrollment or other eligible enrollment times. New employees, including newly hired and newly enrolled employees, may also be added to the plan. Caution should be taken during any mergers or acquisitions if maintenance of grandfathered status is a goal. Grandfathered status will be lost if the primary purpose of a corporate transaction or change in eligibility rules is to transfer or sell the grandfathered status. If at any time no person is covered by an option under the plan, that option shall lose grandfathered status.
Q.4 Can changes be made to eligibility criteria for employees/covered beneficiaries?
A.4 The elimination of a group of employees from eligibility to participate in a grandfathered plan and subsequent transfer to another plan or option will result in the loss of grandfathered status for both plans if there is no employment-based reason for the change in eligibility.
Q.5 Can changes be made to the plan design in terms of cost-sharing with employees?
A.5 Limited changes may be made to the plan design affecting cost-sharing between employees and employers.
- No increase in a percentage-based cost-sharing formula (such as a co-insurance requirement) can be made without losing grandfathered status.
- For fixed amount cost-sharing other than co-payments, increases which cause a total percentage increase in the cost-sharing required above the "maximum percentage increase" will result in the loss of grandfathered status. The "maximum percentage increase" means medical inflation plus 15 percentage points. Medical inflation is the overall medical care component of CPI-U.
- For fixed-amount co-payments, grandfathered status will be lost if the total increase in the co-payment exceeds the greater of: A) an amount equal to $5 times medical inflation plus $5 or B) the maximum percentage increase determined by expressing the total increase in the co-payment as a percentage.
- Finally, grandfathered status will also be lost if the employer decreases its contribution rate (percentage of contributions paid) towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5% below the contribution rate in place on March 23, 2010.
Q.6 What if the plan has already made changes since March 23, 2010?
A.6 Any changes that were adopted before March 23, 2010, even if effective after March 23, 2010, are considered part of the grandfathered plan in effect on March 23, 2010. Any changes that normally would result in the loss of grandfathered status that have been approved or made since March 23, 2010, but before the publication of the regulations and that are revoked before the first day of the plan year on or following September 23, 2010, will not affect the plan's grandfathered status.
Q.7 Are all benefit options treated the same?
A.7 Different benefit options or structures within the same plan are considered separately in determining grandfathered status. For example, if a company health plan offers a preferred provider option and a high deductible/HRA option, either option could retain or lose its grandfathered status independently from the other.
Q.8 How is insurance maintained pursuant to a collective bargaining agreement treated?
A.8 Health insurance coverage maintained pursuant to a collective bargaining agreement is grandfathered until at least the date on which the last of the collective bargaining agreements relating to the coverage that was in effect on March 23, 2010, expires. The insurance policy need not be the same policy in effect on March 23, 2010, as long as each policy conforms to the collective bargaining agreement. After the collective bargaining agreement expires, the coverage in place at that time will be compared to the coverage that was in effect on March 23, 2010, in order to determine if grandfathered status will continue to be retained. Self-insured plans maintained pursuant to a collective bargaining agreement will be subject to the normal grandfathered plan rules.
Q.9 Are there recordkeeping and disclosure requirements to retain grandfathered status?
A.9 To retain grandfathered status, a plan must disclose to participants during the first plan year beginning on or after September 23, 2010, the fact that it believes it has grandfathered status in any communication describing the benefits provided under the plan along with contact information for questions and complaints. The regulations contain model language that can be used for this disclosure. Additionally, a plan must maintain records documenting the terms of the coverage in effect on March 23, 2010, and all subsequent amendments to the plan for as long as grandfathered status is retained. Regulators, such as Health and Human Services or the Treasury, as well as plan participants, have the right to inspect the documents.
Q.10 Does it make sense to retain grandfathered status? Do insured plans have much choice?
A.10 Plan sponsors should carefully consider whether trying to retain grandfathered status is beneficial for their company. The costs associated with retaining grandfathered status should be compared to the cost of complying with all of the health reform provisions. The intangible costs associated with the flexibility allowed by relinquishing grandfathered status should also be considered in the context of the makeup of each employer's workforce. The intangibles include the ability to change to a provider who offers a lower cost product or the ability to amend the benefits provided. However, for insured plans, the decision to retain grandfathered status may ultimately be made by the insurance company. If insurers choose not to offer two different types of products (reform compliant and grandfathered compliant), then the employers will have no choice but to purchase the reform compliant plans and lose grandfathered status. As mentioned above, changing insurers will cause a plan to lose grandfathered status, as will failing to renew the same policy with the same insurer. Therefore, if the insurance company decides not to offer the same insurance policy anymore, the employer will be forced to give up the grandfathered status of its health plan.