Cox Smith Employee Benefits E-Alert
Health Reform: Grandfathered Status Clarified
The federal health care reform legislation enacted in March imposes numerous plan design and market reforms on health plans. So-called "grandfathered health plan coverage" is exempt from some, but not all, of these changes. The legislation simply provided that grandfathered plans were those in existence on March 23, 2010, and did not describe how a plan can maintain grandfathered status or what changes cause this status to be lost.
On June 14 the Departments of Health and Human Services, Treasury, and Labor released joint interim final regulations that flesh out what grandfathered health plan coverage means, what plan changes will cause the status to be lost, and what plan changes can be made without jeopardizing the status.
The rules below apply separately to each benefit package made available under a group health plan, so it is possible for one health plan to have some benefits that are grandfathered and others that are not. The regulations indicate that each coverage option is a "benefit package".
Plan changes that will not cause loss of grandfathered status include:
- Adding new participants to the plan, as long as there is at least one person enrolled in the plan at all times after March 23, 2010;
- Changing third party administrators;
- Increasing premiums (but see below for changes to employer contribution level);
- Cost adjustments to keep up with medical inflation;
- Adding benefits or making modest adjustments to existing benefits; and
- Amending a plan to comply with health care legislation, including before effective date.
Plan changes that will cause loss of grandfathered status include:
- Changing insurance companies;
- Substantially or completely eliminating benefits to diagnose or treat a particular condition;
- Increasing the co-payment percentage by any amount;
- Increasing fixed-amount co-payment charges, deductibles, or out-of-pocket limits beyond established limits;
- Reducing the level of employer contributions for any tier of coverage by more than 5%, measured against the period including March 23, 2010; and
- Adding or decreasing annual dollar limits.
In order to maintain grandfathered status, plans must disclose to participants that the coverage is grandfathered and include materials describing plan benefits. The regulations provide model language for this disclosure. Plans must also maintain records proving that grandfathered status has been maintained, which should include at a minimum all plan documents in effect since March 23, 2010 as well as information about premiums and employer contributions.
If any plan changes adopted before June 14, 2010 would cause grandfathered status to be lost, the status can be preserved if the changes are revoked effective as of the first day of the first plan year beginning on or after September 23, 2010.
For more information regarding the health reform changes, please see our prior e-alerts: Health Reform: Tax Relief--Children Under Age 27 and Health Reform: Early Retiree Reinsurance Program.
Please contact any of the employee benefits lawyers listed if you would like to discuss grandfathered status in more detail, including whether it is important for your health plan to maintain grandfathered status.