MAINTAINING GRANDFATHERED PLAN STATUS 

The IRS, DOL and HHS have issued regulations describing actions that will cause group health plans that were in effect on March 23, 2010 to lose their status as a “grandfathered plan.” Any significant increase in costs for employees, decrease in employer’s cost sharing, condition-specific decrease in coverage, or change in insurer will cause plans to lose their grandfathered status and become subject to the full impact of health care reform legislation. Grandfathered plans have additional notice and record-keeping obligations to maintain grandfathered status.

Exemptions

A benefit package under a group health plan in existence on March 23, 2010 may be considered a “grandfathered plan” and exempt from certain health care reform requirements including:

• coverage of preventive care with no cost-sharing
• coverage of a child up to age 26 if coverage is available through the child’s employer (this exemption ends in 2014 )
• report to HHS regarding claims, enrollment and financial data
• application of §105(h) nondiscrimination rules to insured plans
• quality of care reporting to enrollees and HHS 
• new appeals process including external review
• allowing free choice of primary care provider
• prohibition of preauthorization requirement for OB-GYN
• prohibition of prior authorization and increased cost-sharing for out of network emergency
• prohibition of discrimination against providers acting within the scope of license
• limitation on cost sharing and deductibles
• routine coverage for participation in clinical trials
  

Loss of Grandfathered Plan Status

A benefit package under a group health plan will cease to be a grandfathered plan and will become subject to all of the health care reform requirements if the Plan with respect to the benefit package:

• enters into a new policy, certificate or insurance contract
• eliminates benefits to diagnose or treat a particular condition (e.g., cystic fibrosis)
• decreases the plan's coinsurance rate (e.g., 80% to 70%)
• increases deductibles or out of pocket maximums by more than 15% above the medical inflation rate
• increases co-payments by more than the greater of 15% above the medical inflation rate and $5.00 indexed for medical inflation
• decreases the employer's contribution by more than 5%
• imposes a new or modified annual limit

Permitted Changes

Grandfathered status will not be lost if the plan:

• adds or loses enrollees (unless enrollees were moved from one option to another to avoid grandfathered rules)
• changes premiums (unless employer contribution decreases by more than 5%) 
• changes to comply with the law
• voluntarily complies with health care reform requirements
• changes its third party administrator

Notice and Record-Keeping Requirements

To maintain grandfathered status, a plan must:

• include a notice regarding grandfathered status in plan materials provided to participants (The regulations include a model notice.)
• maintain records documenting terms of the plan on March 23, 2010 and any later changes to the plan; and
• make the records available for examination by participants and state or federal agencies.

 
Still To Be Decided

 
No decision has been made about the effect of:

• changes to plan structure, such as switching from HRA to major medical or from insured to self-insured
• changes in provider network
• changes to prescription drug formulary
• other substantial change to overall benefit design

Contact Us

If you would like more information or assistance regarding grandfathered plan status, please contact a member of Oppenheimer’s Employee Benefits Group.
  

This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.