Agencies Finally Amend Grandfather Regulations Under Health Care Reform

Treasury, Labor, and HHS have finally released an amendment to the grandfathered health interim final regulations. The amended regulation revises earlier guidance, discussed here and here, by allowing group health plans to switch insurance contracts and issuers and still retain grandfather status.

Specifically, group health plans may now change health insurance carriers (that is, enter into a new policy, certificate, or contract of insurance) without ceasing to be a grandfathered health plan, provided that the plan continues to comply fully with the standards set forth in the earlier grandfather regulation. In other words, an employer may move to a different insurance carrier without losing the grandfathered status of its health plan, as long as the new policy does not change plan design in a way that would otherwise cause a loss of grandfathered status under the earlier grandfather regulation standards. Those standards are discussed in earlier posts, here and here.

Importantly, this amendment is not retroactive and it will not apply to changes in effect before November 15, 2010, the date the amended regulation was made public. The operative date is the effective date of the policy, not the date on which a contract for issuance of the policy is signed. Thus, if an employer entered into an agreement with an insurance company on September 28, 2010 to issue a new policy effective on January 1, 2011, then January 1, 2011 is the effective date of the policy and the plan would be permitted to retain grandfather status (provided the new policy is not in violation of the other grandfather rules). A plan entering into a new policy on July 1, 2010 to be effective September 1, 2010, however, would not qualify for this new relief.

Plan sponsors hoping to avail themselves of this amendment by switching carriers will have to provide the new insurer with documentation detailing the terms of the prior coverage.

This amendment to the grandfather regulations will come as welcome news to employers and plan sponsors, who will no longer be required to remain with the same insurance carrier in order to retain grandfather status. This returns to plan sponsors important bargaining power lost for them in the first set of grandfather regulations. Plan sponsors who changed issuers may want to review their plan offerings in order to determine whether they now qualify as grandfathered health plans (and must now, if they choose to maintain a grandfathered health plan, follow the record-keeping and disclosure rules required for plans to retain grandfather status).