Feds Ease HCR Grandfathering Rule

November 15, 2010 (PLANSPONSOR.com) – Federal regulators on Monday amended health-care reform rules allowing all insured group health plans to keep their grandfathered status even if they change providers.

A news release said the rule change provides that all group health plans can switch insurance companies or third-party administrators and shop for the same coverage at a lower cost while maintaining their grandfather status, as long as the structure of the coverage doesn’t violate one of the other rules for maintaining grandfathered plan status. Previously, only self-funded plans could change third-party administrators without losing their grandfathered status, according to the announcement.

Regulators at the Departments of Health and Human Services (HHS), Labor and Treasury said they made the change not only to put insured plans on equal footing with self-insured programs regarding grandfathered status, but also because: “If an employer has to stay with the same insurance company to keep the benefits of having a grandfathered plan, the insurance company has undue and unfair leverage in negotiating the price of coverage renewals.  Allowing employers to shop around can help keep costs down while ensuring individuals can keep the coverage they have.”

According to the announcement, “The purpose of the grandfather regulation is to help people keep existing health plans that are working for them. This amendment furthers that goal by allowing employers to offer the same level of coverage through a new issuer and remain grandfathered, as long as the change in issuer does not result in significant cost increases, a reduction in benefits, or other change described in the original grandfather rule.“

Finally, the regulators said the amendment recognizes that there are circumstances where a group health plan may need to make administrative changes that don’t affect the benefits or costs of a plan.  For example, an insurer may stop offering coverage in a market or a company may change hands.  “In those cases,” the regulators said, “the employer can maintain grandfathered status for their employee’s plan under this amendment.”