The Patient Protection and Affordable Care Act (PPACA) provides that certain group health plans in existence on March 23, 2010 are subject only to certain provisions of PPACA. These plans are called grandfathered plans.
On June 14, 2010, interim final regulations relating to grandfathered plans were issued. The regulations describe the types of activities that will cause a group health plan to lose grandfathered status and the administrative requirements that a plan must follow to maintain its grandfathered status. The regulations are effective immediately. Under the regulations, many typical activities will cause a plan to lose grandfathered status, and it will be very difficult for many plans to maintain grandfathered status over the long term.
Activities that will result in loss of grandfathered status
Grandfathered status applies separately to each benefit option offered under a plan. For example, if a plan offers three options, a self funded plan, an insured plan, and an HMO plan, and the plan replaces the insurer under the insured option, the insured option loses its grandfathered status, but the other two options are still grandfathered.
The following activities will result in a loss of grandfathered status:
Entering into a new policy, certificate, or contract of insurance after March 23, 2010. Any new policy, certificate, or contract of insurance is not grandfathered.
Elimination of benefits. The elimination of all or substantially all benefits to diagnose or treat a particular condition results in a loss of grandfathered status. This includes the elimination of benefits for any necessary element to diagnose or treat a condition. Examples include an elimination of all benefits for cystic fibrosis or the elimination of counseling benefits if a plan provides benefits for a particular mental health condition, the treatment for which is a combination of counseling and prescription drugs.
Increase in co-insurance. Any increase in a plan’s co-insurance percentage causes a plan to lose grandfathered status.
Increase in deductibles or out-of-pocket limits. A plan loses grandfathered status if there is an increase in a fixed deductible or out-of-pocket limit that is greater than medical inflation (an amount published by the Department of Labor) plus 15%.
Increase in fixed copayments. A plan loses grandfathered status if there is an increase in the copayment that exceeds the greater of medical inflation plus 15%, or $5 (adjusted for medical inflation).
Decrease in employer contributions. A plan loses its grandfathered status if the employer decreases its contribution rate towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5% below the contribution rate on March 23, 2010.
New or modified annual limit.
- No previous limits. If a plan did not impose an overall annual or lifetime limit on the dollar value of all benefits, it will lose its grandfathered status if it imposes an overall annual limit on the dollar value of benefits.
- Previous lifetime limits. If a plan imposes an overall lifetime limit on the dollar value of all benefits but no overall annual limit on the dollar value of all benefits, it will lose its grandfathered status if it adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on March 23, 2010.
- Previous annual limits. If a plan imposes an overall annual limit on the dollar value of all benefits, it will lose its grandfathered status if it decreases the dollar value of the annual limit (regardless of whether the plan also imposed an overall lifetime limit on March 23, 2010).
Activities that will not result in loss of grandfathered status
The following changes do not cause a plan to lose grandfathered status:
- Enrolling new employees and their families
- Changes to premiums
- Changes to comply with legal requirements
- Changes to voluntarily comply with PPACA
- Changing a third party administrator
Special rules for collectively bargained plans
Special rules apply to health insurance offered under plans maintained pursuant to a collective bargaining agreement. If health insurance coverage is provided pursuant to a collective bargaining agreement ratified before March 23, 2010, the coverage is grandfathered until the last agreement relating to the coverage that was in effect on March 23, 2010 terminates. After the date on which the last of the collective bargaining agreement terminates, the determination of whether health insurance coverage maintained pursuant to a collective bargaining agreement is grandfathered is made by comparing the terms of the coverage on the date of determination with the terms of the coverage that were in effect on March 23, 2010.
This special rule applies to insured plans, but not self funded collectively bargained plans.
Collectively bargained plans that are grandfathered plans are still subject to the same requirements as other grandfathered health plans; therefore, the provisions of PPACA that apply to grandfathered health plans also apply to collectively bargained plans before and after termination of the last of the collective bargaining agreements.
Administrative requirements
The regulations impose new administrative requirements on plans wishing to maintain grandfathered status. In particular, a plan must include a statement in any plan materials provided to participants or beneficiaries describing the benefits provided under the plan that the plan believes that it is a grandfathered plan and it must provide contact information for questions and complaints. Model language is provided in the regulations for this purpose. In addition, a plan must maintain records documenting the terms of the plan that were in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered plan. This would include plan documents, health insurance policies, certificates, or contacts of insurance, summary plan descriptions, documentation of premiums or the cost of coverage, and documentation of required employee contribution rates. These records must be available for examination by participants, beneficiaries, and a State or Federal agency official. These records must be maintained for as long as the plan takes the position that it is a grandfathered plan.