Group health plans in existence on March 23, 2010, when health care reform was enacted, are not required to comply with certain plan requirements under health care reform (further described in the chart below). However, new interim final regulations set out specific requirements that a group health plan must comply with in order to maintain grandfathered plan status. While for some plans, employers may find grandfather status to be valuable, other employers may determine that the advantages of grandfather status are relatively minimal – especially when compared to the limitations placed on an employer's ability to make cost containment changes to the plan without jeopardizing its grandfather status.
Advantages of grandfather status
Grandfathered plans have exemptions from, or special treatment under, certain health care reform provisions. Below is a chart describing the health care reform provisions that do NOT apply (or have special application) to grandfathered plans. Accordingly, the loss of grandfather status would mean the non-grandfathered plan would have to comply with the identified health care reform provisions.
Preserving grandfather status
In general, any of the following changes which reduce benefits or increase costs for participants would cause a plan to lose its grandfather status:
1) The elimination of all or substantially all benefits to diagnose or treat a particular condition;
2) Any increase in a percentage cost-sharing requirement, such as an individual's coinsurance, above the amount that applied on March 23, 2010;
3) An increase in a fixed-amount cost-sharing requirement that applied on March 23, 2010 other than a copayment (for example, deductible or out-of-pocket limit) by a total percentage that is more than the medical inflation percentage rate plus 15%;
4) An increase in a fixed-amount copayment that applied on March 23, 2010 by more than the greater of $5 (increased for medical inflation) or the medical inflation percentage rate plus 15%;
5) A decrease by an employer in its contribution rate towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5% below the employer's contribution rate for the coverage period that included March 23, 2010; or
6) The imposition of a new overall annual limit or a decrease in the amount of an existing annual limit on the dollar value of benefits.
Grandfathered plans may also lose their status if they transfer employees to another plan or plan option without a bona fide employment-based reason for the transfer.
A special rule applies to insured collectively bargained plans. Such plans maintain grandfather status, even if changes are made, until the last collective bargaining agreement in effect on March 23, 2010 terminates. At that time, the collectively bargained plan either retains or loses grandfather status, depending on the changes made compared to the plan in effect on March 23, 2010.
The interim final rules provide that the following changes will generally not cause a plan to cease to be grandfathered: changes to premiums, changes to comply with federal or state legal requirements, changes to voluntarily comply with provisions of health care reform, and changes in the plan's third party administrator. However, the rules request comments on whether certain other changes not currently addressed in the rules should result in cessation of grandfather status, such as changes to plan structure (switching from self-funded to fully insured, or from a health reimbursement arrangement to major medical coverage), changes in a network plan's provider network, changes to a prescription drug formulary, or any other substantial changes to the overall benefit design. The regulations provide that any new standards published in the final regulations that are more restrictive would only apply prospectively to changes to plans after the publication of the final rules.
Whether to Preserve Grandfather Status
Employers may instinctively think that it is critical to maintain grandfather status. Now that the limits of grandfather status are clarified, employers may want to engage in a cost-benefit analysis. A determination of whether or not it is important to keep grandfather status will require a separate analysis for each benefit package option under a plan. Employers will want to consider the long-term value of preserving grandfather status for a particular benefit package option (based on the exemption or delayed effective date of various health care reform provisions described in the chart below) as compared to the short-term need to modify plan structure in order to control premium costs or achieve other business objectives.
The following Health Care Reform provisions apply ONLY if grandfathered status is lost:
This chart applies only to self-funded group health plans. Other provisions will apply to fully insured plans.
|
Issue |
Description |
Effective Date* |
|
Age 26 Exclusions |
While all plans (grandfathered and non-grandfathered) must cover adult dependent children up to age 26, a grandfathered plan need not offer such coverage if the child is eligible for another employer-sponsored health plan. |
1/1/2011 through 1/1/2014 |
|
First-Dollar Preventive Care |
Non-grandfathered plans must provide certain specified preventive-care services (e.g., immunizations, screenings) without cost sharing. |
1/1/2011 |
|
Appeals and External Review |
Non-grandfathered plans must
|
1/1/2011 |
|
Provider Choice |
Non-grandfathered plans must allow participants to choose their primary care provider, including an OB-GYN for females and a pediatrician for children. |
1/1/2011 |
|
Emergency Services |
Non-grandfathered plans must cover emergency services without prior authorization and without out-of-network surcharges. |
1/1/2011 |
|
Transparency in Coverage Reports |
Non-grandfathered plans must report to HHS, state commissioner and make available to the public, the following: financial data, claims payments and policies, claims denials, enrollment and disenrollment data, rating practices, cost sharing and payments for out-of-network coverage, and other information required by HHS. |
1/1/2011 |
|
Quality of Care Reporting |
Non-grandfathered plans must report annually to HHS and enrollees regarding plan features that improve health outcomes, reduce hospital readmissions, improve patient safety and reduce medical errors, and implement wellness activities. HHS will make reports public. |
3/23/2012 at the latest |
|
Nondiscrimination of Licensed Providers |
Non-grandfathered plans cannot discriminate against a provider who is acting within the scope of his or her license while providing services allowed under the plan. For example, if benefits are covered when performed by a surgeon, then must cover the same benefits when performed by a chiropractor (assuming within scope of license). |
1/1/2014 |
|
Clinic Trials |
Non-grandfathered plans must cover clinical trials and routine expenses for clinical trials for cancer and other life-threatening diseases and cannot discriminate against individuals for participating in the trial. |
1/1/2014 |
|
Maximum Cost Sharing |
Cost-sharing, including deductibles, coinsurance, copayments or similar charges, cannot exceed the out-of-pocket maximum for high deductible health plans in 2014, indexed thereafter. |
1/1/2014 |
*This chart assumes the plan year is the calendar year.
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.