What are the Limits and Reach of the Grandfathered Plan Rules?

August 24, 2010 (PLANSPONSOR.com) - As described in this column previously, PPACA provides generally that grandfathered plans are exempt from some -- but not all -- of the new rules under PPACA. 

 

By PS

This week we cover some additional provisions related to the reach – and limits of the grandfathered plan rules (you can find out more on this topic at What Does the Interim Final Rule Mean for Grandfathered Plans?).

Are certain types of plans exempt from the insurance market reforms in PPACA?

The Preamble to the Rule states generally that retiree-only plans and HIPAA excepted benefits are not subject to the insurance market reform provisions of PPACA. 

With respect to retiree-only plans, the Preamble provides that (1) the PPACA insurance market reforms will not apply to retiree-only plans sponsored by employers in the private sector, (2) HHS will not enforce the requirements of PPACA with respect to non-federal government, retiree-only plans, and (3) HHS will encourage states not to apply PPACA or HIPAA’s requirements against health insurers offering retiree-only plans.

With respect to HIPAA excepted benefits, the Preamble states that coverage that was considered an “excepted benefit” under the HIPAA portability rules still will be considered an “excepted benefit” to which the PPACA insurance market reforms will not apply.  Excepted benefits under HIPAA include benefits specifically listed under the HIPAA exceptions, such as accident only and disability insurance, separate limited scope dental and vision plans, supplemental coverage, independent disease-only coverage, and fixed indemnity plans.

What kind of documentation must a plan maintain in order to preserve their grandfathered status?

The Rule provides that in order to maintain grandfathered status, insurers and plans must maintain records documenting policy or plan terms that were in effect on March 23, 2010.   They must also preserve any other documents necessary to verify, explain, or clarify the plan’s status as a grandfathered plan.  The Preamble to the Rule states that participants, beneficiaries, subscribers, or state or federal agencies must be able to inspect these documents to verify the plan’s status as a grandfathered plan.

Are there any required disclosures to maintain grandfathered status?

To maintain grandfathered status, an insurer or plan must include a statement, in any plan materials provided to participants that describe benefits, that the insurer or plan “believes” that it is grandfathered under PPACA.  The Rule requires plans and insurers to provide contact information for questions and complaints, as well as the administrator’s contact information, and contact information for the DOL (in the case of ERISA plans) or HHS (for individual or nonfederal government plans).  The Rule also provides model language that insurers and plans may use to satisfy this disclosure requirement.

Does a plan lose grandfathered status if plan design changes were implemented between March 23, 2010 and the publication of the Rule?

The Rule provides that a policy or plan will notlose grandfathered status based on changes that would otherwise cause a loss of such status, if such changes were adopted before March 23, 2010 (even if they take effect after March 23, 2010) so long as such changes were adopted pursuant to a legally binding contract, insurance filing, or written plan amendment.  The Preamble to the Rule states that for plan changes adopted after March 23, 2010 but before issuance of the Rule, which “only modestly exceed” the thresholds established by the Rule, the agencies will “take into account good-faith efforts to comply with a reasonable interpretation of [PPACA]” in deciding whether such changes have caused the plan or policy to lose grandfathered status.  The Rule also provides a grace period to undo more significant changes to a policy or plan adopted after March 23, 2010 but before issuance of the Rule.  For those changes, the insurer or plan sponsor can maintain its grandfathered status by revoking or modifying the change by the first plan year beginning on or after September 23, 2010.  Failure to revoke or modify a substantial change within the grace period will result in the plan or policy losing its grandfathered status.

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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.

 

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