On November 17, 2010, the Departments of Health and Human Services, Treasury and Labor (the “Departments”) issued an amendment to the interim final rules under the Patient Protection and Affordable Care Act (the “Affordable Care Act”) that now permits plan sponsors, subject to certain conditions, to change insurance companies without risking the plan’s “grandfather” status.
The interim final regulations, which were published on June 17, 2010, included rules for determining when changes to the terms of the plan would cause the plan to cease to be considered a “grandfathered” plan. Under those interim final regulations, a plan would lose its grandfather status if it made certain changes that either reduced the benefits provided or increased the costs for plan participants. In addition, if a plan sponsor switched from one insurance company to another, the plan would lose its grandfather status. If a group health plan lost its grandfather status, it would be required to comply with several additional provisions under the Affordable Care Act.
The Departments have now made important changes, in part, in response to comments that requiring an employer to remain with the same insurance company provided the insurance company with unfair leverage in pricing coverage renewals. Although employers may now change insurance companies, please note that (1) the new insurance coverage must not violate any of the other “reduced benefits” or “increased cost” provisions that would cause a plan to lose its grandfather status and (2) the plan sponsor must provide the new insurance carrier with documentation regarding the current plan’s benefits, cost sharing, employer contributions and annual limits. This documentation may include a copy of the policy or summary plan description. Please call your relationship attorney with any questions.