What Does Being 'Grandfathered' Really Mean Under HCR?

So this week’s column is a refresher as to which requirements apply to grandfathered plans and which do not.

What is a Grandfathered Plan?

The grandfathered plan rule allows a plan that was in existence on date of enactment of PPACA (March 23, 2010) to remain “grandfathered” unless certain changes are made.  There generally are six events that can trigger loss of grandfather status (sometimes referred to as the six “deadly sins”):

(1)        Elimination of Particular Benefit – Where a plan eliminates all or substantially all benefits to diagnose or treat a particular condition (including particular element to treat condition).

(2)        Adoption or Decrease on Overall Annual Limit – If a plan did not impose an overall annual or lifetime dollar limit as of March 23, 2010, and adopts an overall annual dollar limit; imposed an overall lifetime dollar limit, but not an overall annual dollar limit, as of March 23, 2010, and adopts an overall annual dollar limit that is less than the lifetime limit in effect on March 23, 2010; or if a plan imposed an overall annual dollar limit as of March 23, 2010 and decreases the dollar value of the limit.

(3)        Increase in Coinsurance – If the plan increases its coinsurance percentage by any amount.

(4)        Decrease in Employer Contribution – If a plan decreases the percentage of employer contributions for any tier by more than 5% (cumulative from March 23, 2010).

(5)        Increase in Deductible or Out-of-Pocket Maximum – If a plan increases a deductible or out-of-pocket maximum by more than 15% (cumulative from March 23, 2010 and adjusted for medical inflation.)

(6)        Increase in Copay – If a plan increases a copay by more than greater of: (1) $5 or (2) 15% (cumulative from March 23, 2010 and adjusted for medical inflation).

From What PPACA Provisions are Grandfathered Plans Exempt?

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
• Nondiscrimination Rules Based On Income (Internal Revenue Code § 105(h) rules)

What PPACA Provisions Still Apply to Grandfathered Plans?

Grandfathered plans are not exempt from:

• Requirement to Cover Adult Children to Age 26 (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
• No More Reimbursement for Over-the-Counter Drugs from HSAs, HRAs, and FSAs
• Cadillac Plan Tax and Medicare Part D Subsidy Tax
• Employer Mandates (in 2014)

Plans that want to remain grandfathered will be limited in what changes they can make, which is one reason many plans have decided to forego grandfather status.  The decision largely depends on your current plan structure and what plan design changes you may be considering.  Our summary here only addresses part of the grandfather plan regulation.  The question of retaining grandfather status can be complicated, so before you make any big changes, review the rules carefully.

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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.