by James A. Woehlke, Esq., CPA
As enacted, the Affordable Care Act* “grandfathered” group health plans in existence on March 23, 2010. Many feared grandfathered-plan status was so delicate that almost any change would cause a plan to lose its grandfathered status. The U.S. Departments of Health and Human Services, Labor, and Treasury published “interim final regulations” on June 17, which define the circumstances under which a plan will lose grandfathered status. The regulations permit slightly more flexibility than originally believed.
Grandfathered plans are not subject to the following requirements, which are imposed on new plans:
• Extended nondiscrimination rules
• Restrictions on cost sharing
• No cost sharing for preventive care
• Inclusion of HIPAA wellness program rules
The statute and new interim final regulations permit the following plan changes without adversely affecting grandfathered status:
• Adding new and deleting terminated participants
• Collectively bargained-for changes
• Plan changes required by health care reform
• Cost adjustments to keep pace with medical inflation
• Adding benefits
• Making modest adjustments to existing benefits
• Voluntarily adopting new consumer protections under the new law
• Making changes to comply with state or other federal laws
However, grandfathered status will be lost if (a) the plan changes insurance carriers, or (b) significant changes are made which either reduce benefits or increase costs to the participants. These significant changes include:
• Significant reductions in coverage
• Any increase in percentage cost-sharing
• Fixed cost-sharing increases greater than medical inflation plus 15%
• Certain reductions in employer cost-sharing
• Imposition of a new cap or reducing an existing cap
Significant Reductions in Coverage. If a plan eliminates all or substantially all benefits to diagnose or treat a particular condition, such as cystic fibrosis, grandfathered status is lost. The elimination of benefits for any necessary element to diagnose or treat a condition would also be considered a significant reduction causing loss of status. For example, if a plan provides benefits for the treatment of a mental health condition and that treatment would normally include medication and counseling, the later elimination of benefits for counseling will cause loss of grandfathered status.
Change to Percentage Cost-Sharing. Percentage cost-sharing automatically tracks with the rate of inflation for medical costs. Therefore, the regulations provide that any change in percentage-cost sharing will cause loss of status.
Change in Fixed Cost-Sharing. If a plan increases fixed cost-sharing, such as a deductible, copayment, or an out-of-pocket limit, grandfather status is affected only if the change exceeds 15% plus the rate of medical inflation. For instance, if medical inflation is 10% and a $200 deductible is increased to $300, grandfathered status would be lost because the increase of $200 to $300 (a 50% increase) exceeds the 25% maximum under the assumed facts. However, the regulations have a special rule for copayments that permit an increase of $5 plus medical inflation, in the event the 15% plus medical inflation limitation is exceeded. For example, a copayment increase from $10 to $15 in the previous example would exceed the inflation plus 15% limit, but be permitted under the special rule for copayments.
Reductions in Employer Cost-Sharing. Grandfather status is also lost if the employer reduces its contribution for health coverage by more than 5%.
Imposition of a New Cap or Reducing an Existing Cap. Grandfathered plan status is lost if a plan adds either an annual cap or lifetime cap. Also, a plan with an existing cap will lose its grandfathered status if it reduces the cap.
If you have questions about your plan’s grandfathered status, please contact your MBL Benefits consultant or the author at email@example.com.
* For simplicity, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act are collectively referred to as the Affordable Care Act or ACA.
Additional resources on this subject can be found at
Official publication of interim final regulations: http://www.federalregister.gov/articles/2010/06/17/2010-14488/interim-final-rules-for-group-health-plans-and-health-insurance-coverage-relating-to-status-as-a
Department of Health and Human Services Fact Sheet: Keeping the Health Plan You Have: The Affordable Care Act and “Grandfathered” Health Plans, http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html
Department of Health and Human Services Model Grandfathered Health Plan Notice in Word format, http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc.
Department of Health and Human Services Question and answer sheet on grandfathered status, http://healthreform.gov/about/grandfathering.html
Healthreform.gov information page on grandfathered plans, http://healthreform.gov/about/grandfathering.html
Proskauer Rose article on Grandfathered Plan Status, http://www.proskauer.com/publications/client-alert/health-care-reform-grandfathered-health-plan-interim-final-regulations/
Proskauer Rose Table on the Application of the ACA to grandfathered plans, http://www.proskauer.com/files/uploads/Images/Comprehensive-Chart-on-Part-A-Mandates.pdf.
Health Care Reform Law: Agencies Explain “Grandfathering” http://www.jacksonlewis.com/legalupdates/article.cfm?aid=2099
Venable LLP article on Grandfathered Plan regulations: http://www.venable.com/files/Publication/7948335d-f3ac-4e10-9727-3959d1aa6094/Presentation/PublicationAttachment/eb569e95-25e0-46ee-ab87-543244fc7fb9/grandfathered_health_plans_7-22-10.pdf