This is the fifteenth issue in our series of alerts for employers on selected topics in health care reform. (Click here to access our general summary of health care reform and other issues in this series) This series of Health Care Reform Management Alerts is designed to provide an in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.
This supplements Issue 5 of our Health Care Reform Management Alert Series, which addressed the changes a plan can make without losing its grandfathered status under the Patient Protection and Affordable Care Act (PPACA). As stated in Issue 5, group health plans in existence as of March 23, 2010 will remain grandfathered until the plan makes certain changes to the benefits provided or cost-sharing amounts under the plan. Grandfathered plans are exempt from certain PPACA reforms until they lose grandfathered status.
The interim final and proposed grandfathering regulations issued on June 14, 2010 (Grandfather Regulations) listed a number of changes that would cost a plan its grandfathered status. One such change was entering into a new policy, contract or certificate of insurance (a renewal of an existing insurance policy would not cost the plan its grandfathered status). This limitation led to an onslaught of comments criticizing the loss of grandfathered status due to a new insurance policy. Notably, commenters complained that switching third party administrators for a self-funded plan (usually large plans) would not cause a loss of grandfathered status. This leads to disparate treatment of insured versus self-funded plans where no change in benefits took place. Further, commenters noted that this limitation could have the effect of increasing health care costs by giving the insurance company unfair leverage in negotiations about increased premium costs. Plan sponsors would be unable to shop around their insurance coverage.
On November 15, 2010, the IRS, DOL and HHS released an amendment to the Grandfathering Regulations that removes this restriction and allows group health plans to enter into a new policy, certificate or contract of insurance without losing grandfathered status. This change allows fully-insured plans to switch insurers and self-funded plans to become fully-insured without impacting grandfathered status.
However, the relief is limited. For plans to take advantage of the amended regulations, the change in insurers must become effective no earlier than November 15, 2010 (the contract may be signed earlier, as long as it does not become effective before November 15th). Also, plans are required to provide the insurance carrier with sufficient details regarding the plan’s cost-sharing arrangements, benefits offered and annual limits in place as of March 23, 2010 so that the insurer may verify that the terms of the new insurance policy do not cause the plan to lose grandfathered status for any of the remaining prohibited reasons.
Finally, the IRS, DOL and HHS noted that the agencies are reviewing other public comments submitted on the interim Grandfathering Regulations, and they expect to issue final regulations soon.