Health Care Reform Update: Grandfathered Plans

This week the U.S. Departments of Treasury, Labor and Health and Human Services released the Interim Final Rule for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan under the Patient Protection and Affordable Care Act.
The Department of Health and Human Services has prepared a summary of the grandfathering provisions, but below is a summary prepared by IAAPA's consultants. (This summary is not legal advice and IAAPA members should consult with their attorneys and human resources professionals when creating their compliance strategies with this and all laws):


Pursuant to the Patient Protection and Affordable Care Act ("the Affordable Care Act"), health plans that existed on March 23, 2010, are "grandfathered" and therefore exempt from some of the new law's provisions. For plan years beginning on or after Sept. 23, 2010, all plans (including grandfathered plans) are subject to certain health care reforms including no lifetime limits on coverage, no rescissions of coverage except in the case of fraud or intentional misrepresentation, extension of parents' coverage to most adults under age 26, prohibition on excessive waiting periods, and requirements to provide consumers with a standardized and easy-to-understand summary of coverage. However, grandfathered plans are exempt from other provisions in the Affordable Care Act at least until Jan. 1, 2014.

Given the potential importance of maintaining grandfathered status, the question arises as to what changes, if any, may be made in a plan without causing the plan to forfeit grandfathered status because the changes are significant enough to render the plan not a plan that existed on March 23, 2010. The interim final regulations seek to address this issue.

The interim final regulations provide that a group health plan or health insurance coverage no longer will be considered a grandfathered health plan if a plan sponsor or an issuer:

• Eliminates all or substantially all benefits to diagnose or treat a particular condition. The elimination of benefits for any necessary element to diagnose or treat a condition is considered the elimination of all or substantially all benefits to diagnose or treat a particular condition.

• Increases a percentage cost-sharing requirement (such as coinsurance) above the level at which it was on March 23, 201.

• Increases fixed-amount cost-sharing requirements other than copayments, such as a $500 deductible or a $2,500 out-of-pocket limit, by a total percentage measured from March 23, 2010, that is more than the sum of medical inflation and 15 percentage points.

• Increases copayments by an amount that exceeds the greater of: a total percentage measured from March 23, 2010, that is more than the sum of medical inflation plus 15 percentage points, or $5 increased by medical inflation;

• For a group health plan or group health insurance coverage, an employer or employee organization decreases its contribution rate by more than five percentage points below the contribution rate on March 23, 2010.

• With respect to annual limits (1) a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, did not impose an overall annual or lifetime limit on the dollar value of all benefits imposes an overall annual limit on the dollar value of benefits; (2) a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, imposed an overall lifetime limit on the dollar value of all benefits but no overall annual limit on the dollar value of all benefits adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on March 23, 2010; or (3) a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, imposed an overall annual limit on the dollar value of all benefits decreases the dollar value of the annual limit (regardless of whether the plan or health insurance coverage also imposes an overall lifetime limit on the dollar value of all benefits).

The interim final rule acknowledges there may be other changes in a plan which could trigger a forfeiture of grandfathered status. To this end, the Departments specifically requested comments on whether the following changes should result in the cessation of grandfathered health plan status: (1) changes to plan structure (such as switching from a health reimbursement arrangement to major medical coverage); (2) changes in a network plan's provider network; (3) changes to a prescription drug formulary, and if so, what magnitude of changes would have to be made; and (4) any other substantial change to overall benefit design. IAAPA members are encouraged to send their comments on these items to us and we will include them in our public comment.

To maintain grandfathered health plan status under these interim final regulations, a plan or issuer must maintain records that document the plan or policy terms in connection with the coverage in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify is status as a grandfathered health plan. The records must be made available for examination by participants, beneficiaries, individual policy subscribers, or a state or federal agency official.

Plans or health insurance coverage that intend to be a grandfathered health plan also must include a statement, in any plan materials provided to participants or beneficiaries (in the individual market, primary subscriber), describing the benefits provided under the plan or health insurance coverage, and that the plan or coverage is intended to be a grandfathered health plan within the meaning of section 1251 of the Affordable Care Act. In these interim final regulations, the Departments provide a model statement plans and issuers may use to satisfy the disclosure requirement.

Archived Health Care Webinar Now Available
Last week, IAAPA hosted a webinar on health care reform. Members can log in to the IAAPA website and view the archived footage of this program.