SUMMARY OF FEDERAL INTERIM FINAL RULES
PPACA Grandfathering of Group Health Plans and Health Insurance Coverage
Section 1251 of the Patient Protection and Affordable Care Act (PPACA) provides that certain group health plans and health insurance coverage existing as of March 23, 2010 (date of enactment) are deemed “grandfathered” plans and subject only to certain provisions of PPACA. However, the statute did not address the point to which changes to the grandfathered plan would cause it to no longer be considered a grandfathered plan.
On June 14, the U.S. Department of Health and Human Services (HHS), Internal Revenue Service (IRS), and the U.S. Department of Labor (DOL) jointly issued Interim Final Regulations (IFR) to provide more details and guidance regarding grandfathered status and what changes will cause a plan to lose its grandfathered status. This communication provides a summary overview of the new rule.
What Is a Grandfathered Plan?
A plan that was in existence on and has continuously covered at least one person since March 23, 2010. A grandfathered plan may add new employees or enroll new dependents without losing grandfathered status.
What Causes a Grandfathered Plan to Lose its Grandfathered Status?
Compared to policies and provisions in effect on March 23, 2010, grandfathered plans:
- Cannot Significantly Cut or Reduce Benefits
- Cannot Raise Co-Insurance (or fixed percentage) Charges
- Cannot Significantly Raise Co-Payments Increases can be no more than $5 (adjusted for medical inflation) or a percentage equal to medical inflation plus 15 percentage points
- Cannot Significantly Raise Deductibles or Out-of-Pocket Maximums Increases can be no more than a percentage equal to medical inflation plus 15%
- Cannot Significantly Lower Employer Contributions Cannot decrease the percent of premium the employer pays by more than 5 percentage points
- Cannot Add or Reduce an Annual Limit on What the Insurer Pays
- Cannot Change Insurance Companies (Does not apply to self-insured plans that change administrators and it does not apply to collective bargaining agreements)
- Cannot force employees to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing
- Cannot merge with another plan to simply avoid complying with the law
Assuming a Plan Does Not Violate any of the Restrictions Above, what Changes are Permissible and Will Not Cause a Plan to Lose its Grandfathered Status?
- Comply with Federal or State requirements, such as Mental Health Parity
- Voluntarily comply with provisions of PPACA
- Self-insured plans’ third party administrator
- A plan’s provider network
- A prescription drug formulary
- Plan structure, such as switching from a health reimbursement arrangement to major medical coverage or from an insured product to a self-insured product
How are Collective Bargaining Agreement (CBA) Plans Affected Under the Grandfathering Rules?
- Plan coverage under a CBA will be considered grandfathered at least until the date on which the last agreement relating to the coverage that was in effect on March 23, 2010 terminates. Although considered a grandfathered plan, coverage under a CBA plan, insured or self-insured, MUST comply with the market reforms that apply to non-CBA grandfathered plans without a delayed effective date (that is, regardless of whether and when the CBA expires)
- When the last of the agreements terminates, the current plan will be compared to the coverage that was in effect of March 23, 2010 to determine if the plan is still grandfathered
Does the Rule Stipulate any Disclosure or Recordkeeping Requirements?
Plans must disclose that they are considered grandfathered in any plan materials provided to participants or beneficiaries, and must provide contact information for any questions or complaints about their grandfathered status. Grandfathered plans will also have recordkeeping obligations with respect to the information necessary to verify grandfathered status (e.g., records documenting the terms of the plan that were in effect of March 23, 2010) and must make such records available for examination by participants and regulators.
Does the IFR Provide a Template or Model Language to Assist Plans with Complying with the Disclosure Obligation?
Yes. A copy of the model language can be found in Attachment A.
Can I Offer My Employees both Grandfathered and Non-Grandfathered Plans?
Do the Market Reforms under PPACA Apply to Retiree-Only Plans?
The IFR specifically clarifies that retiree-only plans, as well as “excepted benefits” plans like dental-only and vision-only, are not required to implement the market reforms adopted in PPACA, and HHS urges states not to require such plans to do. However, state laws that impose on health insurance issuers stricter requirements than those in PPACA will not be pre-empted by PPACA.
What are Considerations or Consequences of Losing Grandfathered Status?
For most employers, the grandfathering status is less valuable than one might anticipate. However, each company should weigh the costs and benefits (advantages and disadvantages) of preserving grandfather status or making changes that would cause a plan to lose its grandfathering status. Once a plan loses its grandfather status, it cannot be reversed.
In determining the cost/benefit of losing grandfathered status, considerations should include:
- Comparing the reforms required of grandfathered plans and non-grandfathered plans
- Assessment of the impact of compliance with the market reforms regardless of grandfathered status
- Assessment of the “normal” plan changes that would have likely occurred in the absence of PPACA
- Assessment of your company’s financial picture and/or budget requirements
Table 1 below provides a starting point to evaluating the ‘value’ of preserving grandfathered status. The table outlines the key market reforms under PPACA and which ones apply to grandfathered plans, non-grandfathered plans, or both.
Market Reform Mandates
- References to 2010 in this list mean the reform must be implemented the first plan year after September 23, 2010
- From 2010 – 2014, only limits approved by HHS are permitted; after 2014, annual limits are completely prohibited
- Only applies to children under 19 from 2010 until 2014; applies to all individuals regardless of age thereafter
- Implementation date is unclear with guidance expected
For more details or discussion regarding the grandfathering rules or further financial analysis, please contact a Craford team member at your earliest convenience.
The information presented in this document reflects Craford’s opinion and interpretation of the law in current form and should not be construed as legal advice. You may wish to obtain your own independent legal counsel before taking any actions which impact your health and welfare benefit plans.
Model Language That Can Be Used to Satisfy the Disclosure Agreement
This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.
Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform. This website has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]