Under the Affordable Care Act, group health plans are required to comply with a number of new insurance market reform requirements. Grandfathered plans are not subject to certain of these requirements—most notably, the new rules pertaining to first dollar coverage of preventive care, and the new standards that apply to internal claim and external review procedures.
The Initial Regulation. In June, the Departments of the Treasury, Health and Human Resources, and Labor issued a regulation pertaining to grandfathered health plans, detailing (among other things) the types of changes that would cause a plan to lose grandfathered status. Under the initial regulation, if a plan sponsor changed insurance carriers, changed from one group insurance contract to another with the same insurer, or converted from self-funded to insured status, the grandfather status of the plan would be lost.
The Regulation as Amended. In November 2010, the initial regulation was amended to provide that a benefit option under a group health plan will not lose its grandfathered status if a plan sponsor enters into a new insurance policy, as long as the plan does not make any other changes that would cause a loss of grandfather status (e.g., a reduction in benefits or a change in co-pays, employer contributions, deductibles, out-of-pocket maximums, or co-insurance).
Effective Date of the Regulation, as Amended. The recent amendment to the grandfather plan regulation applies to changes in group health insurance coverage that are effective on or after November 15, 2010. The amended regulation emphasizes that the new rule does not apply retroactively to changes to group health insurance coverage that were effective before this date. For this purpose, the date the new coverage becomes effective is the operative date, not the date the contract for a new policy, certificate, or contract of insurance is entered into. The following examples are provided in the regulation, as amended:
Example. A plan enters into a new insurance contract on September 28, 2010. The new contract will become effective on January 1, 2011. Therefore, January 1, 2011 is the relevant date for determining the application of the new rule.
Example. A plan enters into a new contract with an insurer on July 1, 2010, for a new policy to be effective on September 1, 2010. The plan would cease to be a grandfathered plan because the new contract is effective before November 15, 2010.
Importantly, to maintain status as a grandfathered health plan, a group health plan that enters into a new contract of insurance must provide to the new health insurance issuer (and the new health insurance issuer must require) documentation of plan terms (including benefits, cost sharing, employer contributions, and annual limits) under the prior health coverage sufficient to determine whether there were any other changes to the coverage that would cause it to cease to be a grandfathered health plan. (75 Fed. Reg. 70114)