Yesterday, the government unveiled final and interim rules relating to grandfathered group health plans. A copy of the regulations is available - please click the "Download PDF" link to the left to view.
Why is being a "grandfathered group health plan" important? Well, individuals who are enrolled in a group health plan as of March 23, 2010, may not be required to terminate that coverage, and such plan is considered a “grandfathered health plan.” Grandfathered group health plans are generally not subject to many provisions of the new health care laws (i.e., PPACA [the Patient Protection and Affordable Healthcare Act] and HCERA [the Health Care and Education Reconciliation Act]), except for provisions pertaining to (1) a prohibition on lifetime and annual benefit limitations, (2) a prohibition on the rescission of coverage once granted, (3) the extension of coverage to dependents under the age of 26 (although there is a special transition rule available for "grandfathered health plans"), (4) uniform standards for summaries of benefits and coverage, the prohibition on preexisting condition exclusions, and (5) the prohibition on waiting periods exceeding 90 days in length. Further, grandfathered status is important in terms of certain transition rules; for example, with respect to item (1) above, a provision pertaining to annual benefit limits doesn't not apply to a grandfathered plan for plan years beginning before January 1, 2014, and with respect to item (3) above, a provision pertaining to extensions of dependent child coverage shall apply to a grandfathered plan for plan years beginning before January 1, 2014 only with respect to adult children who are not eligible to enroll in some other employer sponsored group health plan. Accordingly, keeping grandfathered status is quite important.
The final and interim regulations indicate that the following changes to a group health plan will generally result in the loss of grandfathered status:
- Significant cuts or reductions in benefits provided (for example, ceasing coverage for people with diabetes, cystic fibrosis or HIV/AIDS)
- Raising co-insurance charges (for example, increasing the fixed percentage of a charge required to be paid by a covered individual)
- Significantly raising co-payment charges (for example, increasing the fixed dollar amounts for a doctor’s office visit by more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15%)
- Significantly raising deductibles (for example, increasing the first dollar amount of bills that remain the responsibility of a covered individual by more than a percentage equal to medical inflation plus 15%)
- Significantly lowering employer contributions (for example, decreasing the percentage of premiums paid by the employer by more than 5%)
- Adding or tightening an annual limit on benefit payments (for example, adding an annual dollar limitation on benefits or reducing a current annual dollar limitation on benefits)
- Changing insurance companies (for example, purchasing insurance from a different insurance company)
In short, any change which causes employees to have an increased health care cost burden should be carefully scrutinized, as many such changes will result in a loss of grandfathered status. If you are contemplating a specific change with respect to your group health plan, you should examine the new regulations to see how they would apply to your specific changes.
The regulations also indicate that changes adopted pursuant to written amendments made on or before March 23, 2010, even though not effective as that time, will not cause a loss of grandfathered status, nor will changes made after March 23, 2010, pursuant to a legally binding contract entered into before that date. Further, if a grandfathered plan has made changes before the publication of the regulations, the regulations would allow those changes to be revoked or modified effective as of the first day of the first plan year beginning on or after September 23, 2010.
The regulations would also require that grandfathered plans state that they are believed to be grandfathered in any materials provided to participants and beneficiaries, and also require that grandfathered plans keep and maintain records documenting the plan's terms and provisions in effect as of March 23, 2010, to be able to show grandfathered status.
