Health Care Reform Grandfather Regulations Issued – Ways to Lose Status

Treasury, DOL, and HHS have issued joint interim final regulations addressing grandfathered health plan status under Health Care Reform. These rules are effective immediately but are subject to future revision.

The grandfather regulations are long, complex, and better handled over two posts. Today we will discuss the ways a plan will lose grandfather status. Our next post will discuss the special rules for collectively bargained plans, transitional rules, one particularly bright spot for employers, and what these regulations mean for employers.

A grandfathered health plan is a group health plan (insured or self-funded) in operation on March 23, 2010. As we discussed in our June 11 post, grandfathered plans are not subject to certain provisions of Health Care Reform, though some mandates do apply. Grandfather status is determined separately for each benefit package under a group health plan. Thus, loss of grandfather status for one benefit offering will not affect the grandfather status of other offerings.

The following changes will cause a plan to lose its grandfather status:

1. Entering into a new policy, certificate, or contract of insurance with a current issuer or changing issuers (except for insured collectively bargained plans during the term of an agreement related to the coverage).
2. Elimination of all or substantially all benefits to diagnose or treat a particular condition.
3. Any increase to an individual’s percentage coinsurance or other cost-sharing requirement.
4. Any increase in a fixed-amount cost-sharing requirement (such as deductibles or out-of-pocket limits, but not copayments) above the rate of medical inflation plus 15 percentage points.
5. Any increase in copayments above the greater of (a) the rate of medical inflation plus 15 percentage points or (b) $5.00, as adjusted for medical inflation.
6. Any decrease in the employer contribution rate towards the cost of any tier of coverage by more than 5 percentage points.
7. Decreasing or imposing a new annual benefit limit (except that plans with an existing lifetime limit may impose an overall annual limit lower than the lifetime limit).
8. Violating anti-abuse rules related to certain conduct during mergers, acquisitions, or similar business restructuring and plan transfers.
9. Failure to disclose grandfather status in the plan document and disclosure materials (the regulations provide model language).
10. Failure to adhere to certain record-keeping practices.

The following changes will not cause a plan to lose its grandfather status:

1. Changes to premiums.
2. Changes to voluntarily comply with health care reform mandates.
3. Changes adopted prior to June 14, 2010 that would cause a plan or coverage to lose grandfather status, if those changes are revoked and the plan or coverage is modified effective as of the first day of the first plan year on or after September 23, 2010.
4. In general, changes adopted before March 23, 2010 but with an effective date after that date.
5. Changing a self-insured plan’s third-party administrator.
6. Addition of current enrollees’ family members and newly hired or newly enrolled employees and their families; these new enrollees will be covered according to a plan’s grandfathered terms.