Note to readers: Efforts are continuing in Washington to repeal and replace the Affordable Care Act. In early May, the House of Representatives passed a revised version of its replacement, the American Health Care Act. The bill must next be considered by the Senate. Please bear this in mind as you read the article below, and consult your benefits advisor for the latest developments.
Question: Our company is planning to close one of our manufacturing plants and eliminate the health plan offered there. Some of the employees will be transferred to another plant and transfer to the plan at that plant, which we've maintained as a grandfathered plan. Would this transfer affect the plan's grandfathered status?
Answer: The continuation of your plan's grandfathered status will depend on whether there's a bona fide employment-based reason for the transfer. As you're likely aware, grandfathered health plans are those that were in place as of March 23, 2010, and haven't undergone certain prohibited changes. As such, they're excused from certain requirements under the Affordable Care Act. Your plan is in good company with its grandfathered status. Regulations issued in 2015 estimated that more than 40 million participants and beneficiaries remain covered by grandfathered group health plans.
The term "plan" isn't defined for purposes of the grandfather rules. But the rules apply separately to "each benefit package made available under a group health plan." Thus, a plan could lose its grandfathered status with respect to one of its benefit packages (for example, a PPO) if certain changes are made, but keep its grandfathered status for other benefit packages (for instance, an HMO).
Antiabuse rules provide that a plan will lose grandfathered status if it engages in a business transaction (such as a merger, acquisition or other restructuring) for the principal reason of covering new individuals under a grandfathered health plan. In the situation you describe, however, dropping one of two benefit options following a plant closure may provide a bona fide employment-based reason to transfer employees to the benefit option at the new plant. As a result, that benefit option shouldn't cease to be a grandfathered plan solely because of the transfer of the employees from the closed plant.
If you have questions about health care reform, please contact Ron Present, Partner and Health Care Industry Group Leader, at rpresent@bswllc.com or 314.983.1358.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
