Health Care Reform Grandfather Regulations Issued [Part 2] – Other Rules

In our last post we suggested that the grandfather regulations provide one particularly bright spot for employers, and indeed they do: the regulations clarify that Health Care Reform generally does not apply to certain retiree-only plans and benefit plans that are exempt from compliance with HIPAA (such as dental-only and vision-only plans), as well as certain health flexible spending accounts.

This is important enough to bear repeating: most retiree-only, dental-only, vision-only, and health flexible spending accounts will not be affected by Health Care Reform (or these grandfather rules).

The grandfather regulations clarify how Health Care Reform applies to collectively bargained plans. Both self-funded and fully insured collectively bargained plans that are grandfathered are subject to the same requirements as other grandfathered plans. Thus, the provisions that apply to grandfathered health plans apply to collectively bargained plans regardless of whether a collective bargaining agreement is in effect, and changes may be needed to bring a collectively bargained plan into compliance with Health Care Reform mandates before the collective bargaining agreement expires.

A self-funded collectively bargained plan will maintain grandfather status only if it satisfies the requirements described above and does not make any changes that will result in the loss of grandfather status. An insured collectively bargained plan, however, is entitled to maintain grandfather status at least until the termination of the last related collective bargaining agreement in effect on March 23, 2010.

The grandfather regulations also provide transitional rules for plan changes made prior to the enactment of Health Care Reform and the issuance of the regulations. Changes made prior to March 23, 2010 will be considered part of the plan terms (even if not effective on March 23) and will not cause a plan to lose grandfather status if the changes are made pursuant to (1) a legally binding contract entered into on or before March 23, (2) a filing made with a state insurance department on or before March 23, or (3) written amendments adopted on or before March 23. Changes made after March 23, 2010 and adopted prior to the issuance of the grandfather regulations (June 14, 2010) will not cause a plan to lose grandfather status if (1) the changes are revoked or modified as of the first day of the first plan year on or after September 23, 2010 and (2) the terms of the plan on that date would not cause the plan to lose grandfather status.

The new regulations provide meaningful guidance on grandfathered health plans, but we expect further agency guidance on this issue. At this point employers should review their group health plan benefit offerings and decide whether the protection of grandfather status is worth the limited flexibility and prohibitions imposed by it. Depending on the benefits provided, some employers may find that the loss of grandfather status results only in modest health plan cost increases. For other employers, however, loss of grandfather status could result in substantial increases in the cost of providing health coverage.