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Grandfathered health plan information under the Affordable Care Act

What qualifies as a grandfathered plan?

A “Grandfathered Health Plan” is defined as a group health plan or health insurance coverage in which an individual was enrolled on March 23, 2010, regardless of whether the individual later renews coverage. Grandfathered plans are required to meet some, but not all, of the reforms contained in the Patient Protection and Affordable Care Act (PPACA).

The PPACA allows for family members to be added to a current plan and for new employees (including new enrollees subject to certain anti-abuse rules) to be enrolled in a grandfathered plan.

Beyond this, interim regulations detail what it means to be grandfathered and what benefit changes grandfathered plans can make and still retain their grandfathered status.

Application of rules to grandfathered plans

Which health care reform provisions apply to grandfathered plans?

Grandfathered plans will be required to meet some, but not all of the reforms.

Must grandfathered plans provide internal/external reviews under the Act?

Grandfathered plans are not required to comply with the Act’s internal and external review mandate — although plans may voluntarily comply without losing grandfathered status. State requirements continue to apply to insured plans.

Disqualification - What disqualifies a grandfathered plan?

Can you conform benefits to reflect new state and federal laws without loss of grandfathered status?
Generally, a plan will lose grandfathered status if any of the following changes are made after March 23, 2010. These rules apply separately to each “benefit package” offered by an employer:

  1. A significant cut or reduction in benefits by eliminating all or substantially all of the benefits to diagnose or treat a condition, or any necessary element to diagnose or treat a condition.
  2. Raising coinsurance charges.
  3. Significantly raising fixed cost-sharing (i.e., deductibles and out-of-pocket limits) by more than medical inflation (as measured from March 23, 2010) plus 15 percentage points
  4. Significantly raising copayment charges by more than the greater of: (i) medical inflation (as measured from March 23, 2010) plus 15 percentage points or (ii) $5 (adjusted for medical inflation).
  5. Significantly lowering the rate of employer contributions by 5 percentage points for any coverage tier.
  6. Adding or tightening an annual limit (with one exception).
  7. Reclassifying employees so that the reclassified employees are eligible for a different plan (even if it’s a grandfathered plan), without a bona fide employment reason.
  8. Failing to continuously maintain at least one covered individual (not necessarily the same individual).

Note:  To have maintained grandfathered status, a notice must have been placed in plan materials provided to a participant or beneficiary explaining the grandfathered status of the plan or coverage. For coverage that was in effect on March 23, 2010, an amendment to interim final rules released on November 15, 2010, clarified that employers can change health insurance coverage effective on or after November 15, 2010, (i.e., enter into a new policy, certificate, or contract of insurance) without losing grandfathered status as long as other changes are not made that cause the loss of grandfathered status.  Plans entering into a new policy, certificate, or contract of insurance with a new issuer must provide documentation of plan terms to the new carrier, as detailed in the amended rule. The rules for individual market were not modified, meaning a change in carrier in the individual market would result in the loss of grandfathered status.

Maintaining grandfathered status

How does a plan maintain grandfathered status?

The regulations also provide guidance on changes which are generally acceptable and will not normally affect a plan’s grandfathered status as long as the other invalidating changes are not made. Generally, if any of the changes listed below were made to a plan after March 23, 2010, they will not, by themselves, cause a plan to lose grandfathered status:

  1. Changes to third-party administrators or insurers in the group market.
  2. Changing premiums.
  3. Changes to comply with state or federal law, including voluntary changes to implement PPACA.
  4. Agreeing to binding renewals before March 23, 2010, effective on or after March 23, 2010.
  5. Allowing new employees or new enrollees who are not new employees and their dependents to enroll (subject to certain anti-abuse rules).
  6. Allowing new dependents of current subscribers to enroll.

In general, routine changes in provider networks and drug formularies should not defeat grandfathered status.

What changes to coverage does a plan sponsor need to make if they lose Grandfather status?

If grandfathered status is lost, below are some of the market reforms that will apply:

  • Cover immunizations and certain preventive care without cost sharing.
  • Allow free choice among participating primary care physicians and pediatricians.
  • Allow direct access (no referral) to OB/GYN services.
  • Cover emergency services without pre-authorization.
  • Provide internal and external review processes for certain denied claims.
  • Eliminate discrimination in favor of highly compensated individuals (to be implemented for plan years after future regulations are issued).
  • Federal rating limitations in 2014 (state rating rules will still apply).
  • Providing essential benefits in the small group market in 2014.
  • Abide by cost sharing and deductible limits in 2014.

Collectively bargained plans

How are collectively bargained plans treated under the grandfathering rules?

For collectively bargained grandfathered plans, many of the requirements of the Act will continue to apply including: the dependent to age 26 requirement, the elimination of lifetime maximums, and the restriction on annual dollar limits, etc. All grandfathered collectively bargained plans, self-insured and fully insured, are subject to the benefit mandates that apply to grandfathered plans.

How extensive is grandfathering for insured plans collectively bargained?

  • Insured health insurance coverage that is maintained pursuant to one or more collectively bargained agreements that were ratified before March 23, 2010 may switch insurance carriers without defeating their grandfathered status during the term of the collectively bargained agreement. In addition, until the date on which the last agreement relating to the coverage that was in effect on March 23, 2010 terminates, a collectively bargained insured plan (but not a self-funded one) may make changes to the group insurance coverage that would otherwise defeat grandfathered status, such as increasing coinsurance levels.
  • After the last collectively bargained agreement, in place as of March 23, 2010 terminates, the rules that apply for all other grandfathered plans regarding how plans maintain or lose grandfathered status will then apply. According to the rule, the collectively bargained plan should compare the terms of the health insurance coverage after the date the last collective bargaining agreement terminates with the terms of the health insurance coverage that were in effect on March 23, 2010 to determine if the coverage is still grandfathered.
  • You will need to work with your own professional advisors to determine whether your plan is entitled to grandfathering protections, to what extent you intend to apply those protections and for how long.

How extensive is grandfathering for self-funded collectively bargained plans?

Self-funded collectively bargained plans do not have a special status. They are treated like any other grandfathered health plan.

Other

Can you change provider networks or make a change to a prescription drug formulary?

In general, routine changes in provider networks and drug formularies should not defeat grandfathered status.

Affordable Care Act glossary

Healthcare reform and collective bargaining impacts - Frequently asked questions