As mentioned in a previous Client Alert, in June 2010, the Department of the Treasury, Department of Labor, and Department of Health and Human Services (the "Agencies") jointly issued interim final rules addressing how health plans can retain "grandfathered" status under the Health Care Reform Legislation (the "Grandfather Rules").

Prior Rules - Changing Policies or Carriers Eliminates Grandfathered Status

The Grandfather Rules provided that if an employer entered into a new policy, certificate, or contract of insurance after March 23, 2010, the policy, certificate, or contract of insurance would not be a grandfathered health plan with respect to individuals in the group health plan. For example, if an employer were to change issuers for its fully-insured group health plan after March 23, 2010, the group health plan would lose grandfathered health plan status.

New Rules - Grandfathered Status Even If Policy or Carrier Changes

Based on a review of the comments submitted by the public regarding the Grandfather Rules, on November 15, 2010, the Agencies jointly issued regulations amending the Grandfather Rules to eliminate this rule. According to the amending regulations, a group health plan will not cease to be a grandfathered health plan merely because the plan (or its sponsor) enters into a new policy, certificate, or contract of insurance after March 23, 2010, provided that it has not made any other changes that would cause it to lose its grandfathered status.

To maintain status as a grandfathered plan under the amended rules, a group health plan that enters into a new policy, certificate, or contract of insurance must provide to the new health insurance issuer documentation of plan terms (including benefits, cost sharing, employer contributions, and annual limits) under the prior health coverage so that the issuer can determine whether any impermissible change is being made to the plan.

Effective Date of the Amendment

The amendment applies to such changes to group health insurance coverage that are effective on or after November 15, 2010. For this purpose, the date the new coverage becomes effective is the operative date, not the date a contract for a new policy, certificate, or contract of insurance was entered into. For example, if a plan entered into an agreement with a new issuer on September 28, 2010 for a new policy to be effective on January 1, 2011, then January 1, 2011 is the date the new policy is effective (i.e., the plan may change insurance policies or carriers without losing grandfathered status).

This development will have a significant impact on calendar year fully-insured group health plans that have entered into a new contract of insurance (or have changed insurance carriers), as such plans will be able to maintain grandfathered status, provided that they have not made any other changes that would cause them to lose their grandfathered status under the Grandfather Rules.