On Monday June 14th the HHS, DOL, and IRS jointly released interim final rules regarding health reform grandfathered plan status. Some of the rules contained in the Affordable Care Act do not apply to grandfathered plans so employers have been waiting to find out what kind of changes can be made to a plan and still retain its grandfathered status. The rules were published in the Federal Register yesterday, June 17th.
To be a grandfathered health plan, a group health plan or an individual plan must have been in effect on March 23, 2010, the date of enactment. In general, the law allows a grandfathered plan to continue its normal operations without losing its grandfathered status. New employees may enroll in a grandfathered plan, and current participants may reenroll or change coverage to add dependents to the health plan.
Effective for the first plan year beginning on or after Sept. 23, 2010 (Jan. 1, 2011, for calendar year plans)
- Grandfathered plans that are insured plans will not be subject to the nondiscrimination rules of Internal Revenue Code Section 105(h). Section 105(h) prohibits a covered health plan from discriminating in favor of highly compensated employees as to eligibility to participate or benefits provided. Previously, Code Section 105(h) applied only to self-funded health plans but now the Act expands the application of these rules to include all insured plans that are not grandfathered. Avoiding the application of Code Section 105(h) will be a critical issue for many employers who sponsor insured plans that provide different levels of benefits to different workforces.
- Grandfathered plans do not have to provide 'essential benefits' without any cost sharing for those benefits.
- Grandfathered plans are exempt from the requirement that group health plans must establish and maintain a claims and appeal process that includes external review.
- Grandfathered plans do not have to provide the specified preventive care that other group health plans must provide. These preventive care services include certain immunizations and screenings that must be provided by non-grandfathered plans with no cost-sharing to the participant.
- Grandfathered plans do not have to provide emergency services without prior certification and do not have to allow out-of-network expenses under the same cost structure applicable to in-network emergency services.
- Grandfathered plans are not required to provide an individual with the choice of a primary care physician, do not need to permit an individual to choose a pediatrician as a primary care physician, and do not need to permit women direct access to an obstetrician or gynecologist.
- Grandfathered plans can continue to exclude coverage for a treatment due to its being part of a clinical trial.
- Grandfathered plans will not need to provide annual reports to the Secretary of Health and Human Services regarding health care quality and wellness programs.
Effective for the plan year beginning on or after Jan. 1, 2014:
Grandfathered plans will remain exempt from the cost sharing limit and the deductible requirement that will be applicable otherwise. Beginning in 2014, the new law prohibits health plans from imposing total cost sharing for a year that exceeds the out-of-pocket limits that are applicable to high-deductible health plans. Currently, these limits are $5,950 for individual coverage and $11,900 for family coverage. Also in 2014, the new law will limit the maximum deductible to $2,000 for individual coverage and $4,000 for family coverage.
Changes That DO Apply to Grandfathered Plans
Except for the delayed effective date for full coverage of adult dependents, the following provisions apply for the first plan year beginning on or after Sept. 23, 2010 (Jan. 1, 2011 for calendar year plans).
- All group health plans must provide coverage for adult dependent children up to age 26. Prior to Jan. 1, 2014, this rule applies to grandfathered plans only if the child is not eligible for coverage under another employer sponsored plan.
- Grandfathered plans are prohibited from pre-existing condition exclusions for enrollees under the age of 19 and for all enrollees in 2014.
- Grandfathered plans may not rescind coverage under a group health plan for a participant except in the case of fraud or intentional misrepresentation by the participant.
- Grandfathered plans are prohibited (like all group health plans) from applying a lifetime limit on the value of 'essential benefits' for any plan participant or beneficiary. The new law also only permits "restricted annual limits" (to be defined by future HHS regulations) on the dollar value of essential benefits provided to a plan participant or beneficiary.
The following provisions will apply to grandfathered plans (and all other group health plans) for plan years beginning on or after Jan. 1, 2014.
- A plan may not have a waiting period in excess of 90 days for a new enrollee.
- All group health plans and insurers will be prohibited from denying coverage for pre-existing conditions.
- Beginning in 2014, annual coverage limits are prohibited.
Changes That Cause a Loss of Grandfathered Status
Most of the changes that will cause a plan to lose its grandfathered status are related to reductions in benefits provided to employees. It seems that the grandfathered plan rules are designed to give employers a reason to keep benefits at or near current levels.
A plan will lose its grandfathered status if changes are made that exceed certain parameters when compared to the plan polices in effect on March 23, 2010. The following changes would cause a plan to lose grandfathered status:
- A significant cut or reduction in benefits for specific conditions. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
- Raising co-insurance that is based on a percentage. Plans cannot raise the % charged for co-insurance (for example raising the hospital co-pay from 20% to 30%).
- Significantly raising deductibles or fixed co-payment charges. Deductibles and fixed-dollar co-payments cannot be raised more than a specified amount. New deductibles and co-payments will be compared to those in effect on March 23, 2010. To retain grandfathered status plans can increase deductibles and co-pays by no more than a fixed percentage or $5 whichever is greater. The allowed percentage increase is calculated by adding medical inflation since March 23, 2010 plus 15%. For example - If the medical inflation rate equals 6% between March 23, 2010 and the date the deductible will be raised, an employer could increase deductibles and co-pays up to 21% and still retain grandfathered status.
- Reducing employer contributions. To retain grandfathered status, plans cannot decrease the percent of premiums the employer pays by more than 5% (for example an employer would lose grandfathered status if they decrease their own share and increase the workers' share of premium from 15% to 25%).
- Reduce annual limits. To retain their status as grandfathered plans, plans cannot reduce the annual dollar limit in place as of March 23, 2010. Plans that did not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit.
- Change Insurance Companies. In what was a surprise ruling for many observers, if an employer changes the insurance company for a fully insured plan, the plan will lose grandfathered status. This rule does not apply to self-funded plans.
Disclosure to ParticipantGrandfathered plans must include a disclosure in plan materials that the plan believes that it is a grandfathered plan and therefore is not subject to some of the provisions of the Affordable Care Act. The rules contain model language that can be used for this purpose.
Transition Rules
If employers have already made changes to their plans since March 23, 2010 which will cause the loss of grandfathered status, the rules allow the changes to be rescinded or reduced to a level that maintains grandfathered status on the next plan year beginning after September 23, 2010.
In the preamble to the rules the agencies also state that they will take into account good faith efforts to comply and will not enforce the grandfathered rules for changes that "modestly exceed" changes allowed in the rule. However, no guidance is provided as to what would constitute "modestly exceed" so this statement is of little value to employers who have already made plan changes this year that exceed what is allowed. Additional guidance is needed before employers can assume any recently enacted changes can be ignored.
So What Now?
Possibly the most important question employers need to answer is does it even matter if their plan loses grandfathered status? The most significant provisions an employer would need to implement if a plan loses grandfathered status include the following:
- Certain preventive care services will need to be covered with no co-pays or deductibles
- Adult children to age 26 would be eligible for coverage even if they are eligible for other employer-sponsored group coverage
- Fully-insured plans would be subject to the Section 105 non-discrimination rules
- Plans would need to comply with new appeals rules
- Certain "patient protection" rules would apply, including a requirement for members to have primary care access to pediatricians and OB/GYNs
When considering the additional requirements that must be met, many employers may simply conclude that it is not worth trying to maintain grandfathered status. |
