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Government Issues Guidance Regarding Grandfathered Plan Status

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Resource: Grandfathered Plan Status 6 17 10.pdf

On June 14, the three governmental agencies charged with regulating and enforcing the federal government’s health care reform effort (Department of Treasury, Department of Health and Human Services, and Department of Labor) released interim final regulations that address the applicable exemptions for “grandfathered” health plans and the changes that may and may not be made to plans to retain grandfathered status.

What actions will eliminate grandfathered status?
The 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;
• Increases a percentage cost-sharing requirement (such as coinsurance) above the level at which it was set on March 23, 2010;
• Increases fixed-amount cost-sharing requirements other than copayments, such as a deductible or out of-pocket limit, by a total percentage measured from March 23, 2010 that is more than the sum of medical inflation plus 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 measured from March 23, 2010;
• Decreases employer’s or employee organization’s (union) contribution rate by more than five percentage points below the contribution rate on March 23, 2010;
• Changes insurance companies under which an insured Plan’s benefits are provided; or
• Imposes an annual benefit limit lower than the limit in effect on March 23, 2010 under such plan, except that plans with no annual limit in effect on such date may impose an annual limit in an amount no less than the lifetime benefit limit in effect on March 23, 2010.

What enforcement mechanisms are included?
To prevent health plans from using the grandfather rule to avoid providing required benefits and provisions, the regulations provide for:
• Required plan disclosures to participants every time the health plan distributes materials indicating whether the plan believes that it is a grandfathered plan;
• Revoking a plan’s grandfathered status if it forces participants to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing as a means of avoiding any of the new requirements; or
• Revoking a plan’s grandfathered status if it is bought by or merges with another plan simply to avoid complying with the law.

What other guidance do the regulations provide?
Finally, the regulations clarify certain other questions about the applicability of health care reform to certain plans:
• Retiree-only health plans generally are exempt from the health care reform plan design and operational changes.
• “Excepted benefits,” such as dental-only, vision-only, and health flexible spending account plans, are exempt from the health care reform plan design and operational changes.
• There is no broad exemption for collectively bargained insured plans that are subject to bargaining agreements in effect on March 23, 2010; such plans are deemed to be grandfathered health plans until the termination of the last collective bargaining agreement in effect on March 23, 2010 and are subject to all of the health care reform changes that otherwise apply to grandfathered health plans.
• Adding existing employees as new enrollees in an employment-based group health plan after March 23, 2010, will not affect the plan status as a grandfathered health plan.
• A plan with multiple benefit packages may have both grandfathered and non-grandfathered benefit packages; the rules apply separately to each benefit package.
• In general, plan changes adopted before March 23, 2010 with a subsequent (later) effective date will not cause a loss of grandfathered status. If a plan sponsor made changes to a group health plan after March 23, 2010, that would cause a plan to lose its grandfathered status. Under the new guidance, the plan sponsor may reverse those changes before the first plan year beginning on or after September 23, 2010 (generally, the 2011 plan year) and preserve grandfathered health plan status.

Any amendment or other change to a health plan should be reviewed carefully to determine whether it will terminate the plan’s grandfathered status and, if so, whether retaining grandfathered status is worthwhile and valuable.

Please contact a McMahon Berger attorney with questions about these or any other issues.

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