Agencies Issue Regulations on Grandfathered Health Plans

June 14, 2010 ( – The Internal Revenue Service, jointly with the Department of Labor and Department of Health and Human Services, have issued proposed regulations relating to “grandfathered” plans under the Patient Protection and Affordable Care Act, along with interim final regulations.

The proposed regulations address at what point changes to a group health plan or health insurance coverage in which an individual was enrolled on March 23, 2010, are significant enough to cause the plan or health insurance coverage to cease to be a grandfathered health plan. The agency said the interim final regulations are designed to ease the transition of the health care industry into the reforms established by the PPACA by allowing for gradual implementation of reforms through a reasonable grandfathering rule.  

The rules constrain the extent to which the scope of benefits can be reduced before a plan loses grandfathered status, as well as limits the extent to which plans and issuers can increase the fixed-amount and the percentage cost-sharing requirements that are imposed, limits the ability of an employer or employee organization to decrease its contribution rate for coverage, and constrains the imposition of a new or modified annual limit by a plan, or group or individual health insurance coverage.  

The regulations include model language for the requirement that plans disclose their grandfathered status to eligible participants.  

Under the Act and the interim final regulations, if family members of an individual who is enrolled in a grandfathered health plan as of March 23, 2010, enroll in the plan after March 23, 2010, the plan or health insurance coverage is also a grandfathered health plan with respect to the family members. The regulations also provide that a group health plan that provided coverage on March 23, 2010, generally is also a grandfathered health plan with respect to new employees (whether newly hired or newly enrolled) and their families who enroll in the grandfathered health plan after March 23, 2010.  

To prevent abuse, the interim final regulations provide that if the principal purpose of a merger, acquisition, or similar business restructuring is to cover new individuals under a grandfathered health plan, the plan ceases to be a grandfathered health plan.  

The regulations list the new health coverage reforms that apply to grandfathered health plans.  

Both the proposed and interim final regulations will be published in the June 17 edition of the Federal Register.  The agencies are asking for comments.