On Thursday, June 17, 2010, the Department of Labor (Employee Benefits Security Administration) (EBSA) along with the Departments of the Treasury (Internal Revenue Service) and Health and Human Services released much-anticipated regulations describing the changes a group health plan may or may not make in order to maintain its status as a grandfathered health plan under the provisions of The Affordable Care Act. These regulations may be found at http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=23967&AgencyId=8&DocumentType=2 The Departments also issued a Table of Provisions Applicable to Grandfathered Plans, available at http://www.dol.gov/ebsa/pdf/grandfatherregtable.pdf and model disclosure language required under the Act, available at http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc This followed the publication on June 15, 2010 of a Fact Sheet on “Keeping the Health Plan You Have: The Affordable Care Act and ‘Grandfathered” Health Plans’ “ available at http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html and FAQs available at http://www.healthreform.gov/about/grandfathering.html
Under these new regulations, all health plans, whether or not they are grandfathered plans, will have to provide certain benefits beginning on or after September 23, 2010 including:
- No lifetime limits on coverage;
- No restrictions of coverage when people get sick and have previously made an unintentional mistake on their application;
- Extension of parents’ coverage to young adults under age 26;
- No coverage exclusions for children with pre-existing conditions; and
- No “restricted” annual limits.
Grandfathered health plans will be able to make routine changes to their policies and maintain their grandfathered status, including cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the Affordable Care Act, or making changes to comply with State or other Federal laws. Premium changes will not affect a plan’s grandfathered status.
However, plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to members/consumers. Significant changes that will result in a plan losing its grandfathered status include:
- Significantly cutting or reducing benefits;
- Increasing co-insurance charges under a plan;
- Significantly increasing co-payments by an amount which is the greater of $5 (adjusted annually for medical inflation) or by a percentage equal to medical inflation plus 15 percentage points;
- Significantly raising deductibles by an amount which is greater than a percentage equal to medical inflation plus 15 percentage points;
- Significantly lowering employer contributions by more than 5%;
- Adding or tightening an annual limit on what an insurer pays. (Note that under the new regulations, plans that do not have an annual dollar limit cannot add such a limitation except under limited circumstances); and
- Changing insurance companies.
Under the new regulations, group health plans are required to disclose to members/consumers whenever it distributes materials whether the plan believes that it is a grandfathered plan and therefore not subject to some of the additional requirements under The Affordable Care Act. Additionally, if a grandfathered plan forces its members/consumers to switch to another grandfathered plan with lesser benefits or higher costs than the original plan, the plan will lose its grandfathered status. A plan will also lose its grandfathered status if it is bought by or merges with another plan simply to avoid complying with the Act.
The federal government projects that large employer plans (100+ employees) will not see major changes to their plans as a result of these regulations. Most of these plans will retain their grandfathered status through 2011 based on the way they changed cost sharing arrangements in 2008-2009. Fully-insured plans that are subject to collective bargaining will be able to maintain their grandfathered status until the bargaining agreements expire. Retiree-only and “excepted health plans” such as dental plans, long term care insurance or Medigap plans are exempt from The Affordable Care Act’s reforms. The federal government also projects that for small business plans (< 100 employees) 70% of such plans will be grandfathered in the first year, but depending on plan design choices employers make, the government expects that only about 30% of small business plans will be able to retain their grandfathered status over the next several years. For individuals insured in the individual health insurance market, transition to plans that are compliant with the Act will be much faster, due to the rate with which such individuals switch plans in a typical year (on average, between 40% to 65%).
