The latest health care reform implementation FAQ Part VI provides further guidance on grandfathered health plans. We have been closely following the agencies’ discussions of grandfathered status, such as the interim final regulations released last June and the prior FAQ issued last October.
The new implementation FAQ addresses six issues relating to the preservation of grandfathered status. Highlights include the following:
Employee Transfers & Anti-Abuse Rule
If a grandfathered health plan transfers employees from one grandfathered plan or benefit package to another, the plan or package that accepts the transferred employees (Plan 2) will lose grandfathered status if an amendment to the transferor plan (Plan 1) to replicate the terms of Plan 2 would cause Plan 1 to lose grandfathered status itself. The regulations do provide an exception: Plan 2 won’t lose its grandfathered status if the transfer was for a “bona fide employment-based reason.”
The FAQ provides a non-exclusive list of circumstances that would be considered “bona fide” reasons for employee transfers such that the transferee’s grandfathered status would not be lost. For example, a “bona fide” reason exists when:
- A benefit package is eliminated because the issuer is exiting the market or no longer offers the product to the employer;
- Low participation makes it impractical for the plan sponsor to continue offering a benefit package;
- A benefit package is eliminated from a multiemployer plan under the terms of collective bargaining; or
- 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.
Prescription Drugs & Cost-Sharing
The FAQ poses the following scenario: A plan bases cost-sharing for brand-name prescriptions on whether the drug has a generic alternative. Does the plan lose grandfathered status if, when a generic becomes available for a brand-name drug that did not previously have one, the brand-name drug is re-classified with a resulting increase in cost-sharing for that brand-name drug? The FAQ’s answer is no: the movement of the brand-name drug into higher cost-sharing based on the addition of the generic to the formulary will not cause the plan to lose its grandfather status.
Plan Amendments & Effective Dates
If a plan amendment causes a plan to lose grandfathered status, confusion can arise regarding exactly when the plan ceases to be grandfathered: when the amendment is adopted, or when it is effective? The FAQ confirms that a plan ceases to be a grandfathered health plan as of the effective date of the amendment that causes the loss of grandfathered status—not the date when the amendment is adopted. For example, calendar-year plans that want to avoid a mid-year loss of grandfathered status should use a January 1, 2012 effective date for an amendment that causes the loss of grandfathered status; the plan can adopt the amendment now and remain grandfathered through the end of 2011 as long as the effective date is not before January 1, 2012.