On June 17, the Department of Health and Human Services, the Internal Revenue Service, and the Department of Labor jointly issued interim final regulations regarding grandfathered health plans under the Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010. In order to meet the promise that people would be able to keep their current health insurance plans, PPACA set out group health plans and individual insurance that were in existence when the health care reform act was enacted on March 23, 2010, as "grandfathered" plans that do not have to meet all of the requirements set forth in PPACA. Plan issuers and employers have been awaiting guidance on which plans meet the definition of a grandfathered plan and what changes could be made to existing plans without causing them to lose their grandfathered status. The regulations are effective immediately, although the agencies are seeking comments on various provisions by August 16.
What Are "Grandfathered" Plans?
A group health plan or health insurance coverage is a grandfathered health plan with respect to individuals enrolled on March 23, 2010, their family members, and other new employees (whether newly hired or newly enrolled) thereafter. A group health plan (or health insurance coverage) will remain a grandfathered plan, even if one or more of such individuals cease to be covered, as long as the plan has continuously covered at least one person (not necessarily the same person) since March 23. A grandfathered plan can be insured or self-insured. These plans do not have to comply with the new requirements to offer preventive health without cost sharing, establish external review procedures for the claims appeal process, cover clinical trials, and comply with certain quality of care reporting requirements, among other health reform mandates.
However, even grandfathered plans are subject to some new rules for plan years starting after September 23, 2010, including those relating to lifetime and annual limits, pre-existing condition-exclusions, and coverage of adult children until they reach age 26. A detailed list of which PPACA provisions apply and do not apply to grandfathered plans is available on the Department of Labor Web site.
Highlights of the Regulations
The regulations clarify several previously unanswered questions regarding the scope of the special rules that apply to grandfathered health plans under the health reform law. In particular, the regulations provide that:
- Grandfathered plan status is determined separately with respect to each benefit package.
- Plans will lose grandfathered status under certain specified circumstances.
- Grandfathered collectively bargained plans are subject to the same health reform provisions as any other grandfathered plans.
- Participants must be furnished with certain disclosures regarding a plan's grandfathered status. A sample disclosure statement is provided in the interim final regulations.
- Grandfathered plans must maintain certain records that verify their status.
- States may impose stricter requirements on health insurers than imposed by the new health reform law.
Losing Grandfathered Status
A number of ways that a plan can lose its grandfathered status are detailed in the regulations and illustrated with examples. Most basically, if an employer or employee organization enters into a new policy, certificate or contract of insurance (for instance, because an existing contract is not renewed) after March 23, the plan is no longer a grandfathered plan.
Other actions that result in a plan's loss of grandfathered status include:
- Elimination of benefits to diagnose and treat a particular condition.
- Increase in percentage cost sharing requirements (such as an individual co-insurance requirement).
- Increase in fixed amount cost-sharing requirements other than a copayment (such as a deductible or out-of-pocket limit) above the maximum percentage increase defined in the regulations.
- Increase in a fixed amount copayment greater than $5 (indexed to medical inflation) or the maximum percentage increase.
- Decrease in the contribution rate by the employer or employee organization by more than 5 percent.
- Addition of or a decrease in annual limits.
A transition rule provides guidance for changes made to a plan prior to March 23, or after March 23 but before June 14.
Sponsors of grandfathered health plans should:
- Ensure that their grandfathered plans timely comply with all applicable requirements of the regulations and PPACA;
- Assess the potential impact that any loss of grandfathered plan status would have (i.e., determine the consequences of having to comply with the health care reform requirements that do not apply to grandfathered plans);
- Determine whether any corrective action(s) are necessary to maintain their plans' grandfathered status;
- Include in any plan materials provided to participants or beneficiaries that describe plan benefits appropriate information regarding the plan's grandfathered status (use of the model language in the regulations should be considered); and
- Maintain appropriate records that verify or explain its status as a grandfathered plan (historic data as of March 23, 2010).
Department of Labor Frequently published a second FAQ on the implementation of the rules governing “grandfather plans” under the new health care law.
Department of Health and Human Services Fact Sheet
Employee Benefits Security Administration, Department of Labor
Society for Human Resource Management