The Impact of the PPACA's Grandfathered Rule Amendment

The new guidance amends the original rule, issued July 17, 2010, which provides that a health plan in existence on date of enactment of PPACA (March 23, 2010) can be considered “grandfathered” unless certain changes are made.   

The original rules provided that if a plan made any of the following changes, it would lose grandfathered status: (1) eliminating a particular benefit; (2) adopting or decreasing an overall annual limit; (3) increasing a coinsurance percentage by any amount; (4) decreasing employer contributions by more than 5%; (5) increasing a deductible or out-of-pocket maximum by more than 15%; or (6) increasing a copay by more than the greater of $5 or 15%.  The original rules also indicated that if a plan changed insurers, it would lose grandfathered status, presumably because the policy issued by the new insurer would be different enough to trigger one of the above changes.   

However, the rules provided that if a self-funded plan changed third party administrators (TPAs), this would not necessarily cause a loss of grandfathered status unless the TPA change also coincided with one of the changes above.  

Amendment to Grandfather Plan Rules 

The amendment provides that a health plan that otherwise is a grandfathered plan will not lose grandfather status merely because the plan enters into a new insurance policy or contract or changes insurers after March 23, 2010.  The amendment states that, to remain grandfathered in this situation, a health plan must provide the new insurer with documentation (and the new insurer must require) of its plan terms, including benefits, cost sharing, employer contributions, and annual limits, sufficient to determine whether the change in carriers causes a change that would trigger grandfather status. 

The amendment has very specific effective dates by which a plan must have been in force in order for the amendment to apply.  The amendment will apply where the effective date of the new policy is on or after November 15, 2010.  If the effective date of the new policy is before November 15, 2010, the amendment will not apply (this was the date the amendment was issued by the agencies, prior to being published in the Federal Register).  So, if a plan changed carriers after March 23, 2010, and the new policy was effective July 1, 2010, the plan has lost grandfathered status (because the new amendment had not been issued).  However, if the plan changed carries after March 23, 2010, but the new policy is not effective until January 1, 2011, the amendment does apply.  The plan and carrier would need to review what, if any, changes were made as a result of the change in carriers to determine if the plan can maintain grandfathered status. 

Impact of Grandfathered Plan Status 

When analyzing whether a plan wishes to remain grandfathered, plans should keep in mind which provisions would not apply (and which will continue to apply) to grandfathered plans.  Grandfathered plans are exempt from the following insurance market reform provisions of PPACA: 

• Coverage for Recommended Preventive Care; 
• Coverage for Emergency Services; 
• Choice Of Primary Care Provider / Access to OB-GYN; 
• Appeals & External Review Requirements; and 
• Nondiscrimination Rules Based On Income (Code § 105(h) rules). 

Grandfathered plans are not exempt from: 

• Requirement to Cover Adult Children to Age 26 Rule (although a grandfathered plan is permitted to not extend coverage to adult children who have access to other employer coverage, such as through their own employer); 
• Annual & Lifetime Limits Restrictions; 
• Rescission Rules; 
• Prohibition on Pre-Existing Condition Exclusion for Enrollees under Age 19; 
• Removal of Reimbursement for Over-the-Counter Drugs from HSAs, HRAs, and FSAs; 
• Cadillac Plan Tax and Medicare Part D Subsidy Tax; and 
• Employer Mandates (in 2014). 

In the Preamble to the new grandfather rule amendment, the agencies say that they are continuing to review comments on the grandfather rule overall and invite comments on the new rule as well.  They also state that final regulations on the grandfather rule will be published in the "near future." 

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Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions 

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html    

Contributors:  

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.  

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.  

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.