Health Care Reform - Grandfathered Health Plan Regulations
June 25, 2010
As mentioned in a previous alert, certain new requirements under the Patient Protection and Affordable Care Act (PPACA), signed into law on March 23, 2010, as modified by the Health Care and Education Reconciliation Act of 2010 ("Reconciliation Bill" and combined, "Health Care Act") will not apply to group health plans that qualify for "grandfathered" status. On June 17, 2010, the Departments of Labor, Health and Human Services, and Treasury issued interim final regulations regarding the requirements for achieving and maintaining grandfathered status under the Health Care Act. These regulations are effective immediately, although the regulations provide a grace period through September 23, 2010, as discussed below.
The Health Care Act provides grandfathering protection in two circumstances. There is a general provision that applies to all group health plans and a more specific provision for collectively bargained plans.
General Grandfather Rule Grandfather Rule for Collectively Bargained Plans Benefits of Having Grandfathered Status
General Grandfather Rule
Grandfather Rule for Collectively Bargained Plans
Benefits of Having Grandfathered Status
Coverage of Preventive Care
- Uniform Explanations of Coverage
- Application of Nondiscrimination Rule to Fully-Insured Plans
- Reporting of Wellness and Health Promotion Benefits
- Claims Procedures
- Prohibition of Discrimination Based on Health Status
- Prohibition of Discrimination Against Providers
- Limitations on Cost Sharing
All of the Health Care Act’s other requirements will apply regardless of grandfathered status. So while the benefits of being a grandfathered plan are considerable, plan sponsors should weigh the administrative burden/costs of maintaining grandfathered status described below.
Maintaining Grandfathered Status
The regulations require a grandfathered plan to include a disclosure statement regarding the plan’s grandfathered status in the materials that describe the plan to participants. The regulations provide a model disclosure that can be used to satisfy this requirement.
- The plan sponsor entering into a new insurance policy for the plan.
- The elimination of all or substantially all benefits to diagnose or treat a particular condition.
- Any increase in a percentage cost-sharing requirement (for example, a coinsurance obligation).
- Any increase in a fixed-amount cost-sharing requirement other than a copayment (for example, deductibles or out-of-pocket limits) that exceeds medical inflation plus 15%.
- Any increase in a fixed-amount copayment that exceeds the greater of $5 or medical inflation plus 15%.
- A decrease in the employer’s contribution rate of more than 5%.
- Certain changes in annual limits:
- The addition of a new overall annual limit on the dollar value of benefits.
- The addition of an overall annual limit that is lower than the plan’s previously-existing lifetime limit.
- A decrease in the plan’s previously-existing overall annual limit.
Anti-Abuse Provision Grace Period for Revoking Disqualifying Plan Changes
The regulations also contain an anti-abuse provision that generally prohibits the use of mergers, acquisitions or similar transactions if the principal purpose is to avoid losing grandfathered status. The anti-abuse provision also prohibits the transfer of employees between grandfathered plans to avoid losing grandfathered status, unless there is a separate, bona fide, employment-based reason for doing so.
Grace Period for Revoking Disqualifying Plan Changes
The text of the regulations may be found here.