What Does the Interim Final Rule Mean for Grandfathered Plans?

The Rule was published in the Federal Register on June 17, 2010 (see Agencies Issue Regulations on Grandfathered Health Plans).  Among other things, the Rule provides important guidance on what changes can be made to a group health plan or insurance coverage without the plan or policy losing grandfathered status.     

As described in our April 27, 2010 column (see What is a Grandfathered Plan?), PPACA provides generally that grandfathered plans are exempt from some — but not all — of the new rules under PPACA.   

What is a grandfathered plan? 

To be a grandfathered plan, a group health plan or policy must have had at least one individual enrolled in coverage on March 23, 2010, and the plan or policy must have continuously covered someone since March 23, 2010 (even if not the same individuals).  Any new policy, certificate, or contract of insurance issued after March 23, 2010 is not grandfathered.  Under the Rule, grandfathered status applies separately to each benefit package offered under a policy or plan. 

The Preamble to the Rule states that any insurance policy sold to new entities or individuals after March 23, 2010 will not be grandfathered, even if the product was offered in the group or individual market before March 23, 2010. 

What changes may be made to a grandfathered plan without the plan losing its status as a grandfathered plan? 

The Preamble to the Rule provides examples of certain changes to a plan or policy that, on their own, will not cause the plan or policy to lose its grandfathered status.  Specifically, the Preamble provides examples indicating that the following are permitted changes:  

• Changes to a policy or plan premium; 
• Changes required to comply with federal or state law;  
• Changes to voluntarily comply with PPACA or to increase benefits; and 
• Changes to a plan’s third party administrator.  

What changes to a grandfathered plan will result in the loss of grandfathered status? 

The Rule provides that the following changes will result in loss of grandfathered status:  

• Elimination of all or substantially all benefits to diagnose or treat a particular condition; 
• Increasing the coinsurance percentage by any amount above the level at which it was set on March 23, 2010; 
• Increasing a deductible or out-of-pocket maximum by more than medical inflation plus 15%, as measured from March 23, 2010; 
• Increasing a copayment for any service by more than the greater of $5 (adjusted for medical inflation), or medical inflation plus 15%, as measured from March 23, 2010; 
• Decreasing the employer contribution rate toward the cost of any tier of coverage (e.g., self or family) by more than 5 percent below the contribution rate on March 23, 2010;   
• Imposing an overall annual limit on the dollar value of benefits if the plan or policy did not impose an overall annual or lifetime limit on the dollar value of benefits on March 23, 2010;   
• Imposing an overall annual limit on the dollar value of benefits that is lower than the lifetime limit on the dollar value of benefits that existed on March 23, 2010; and 
• Decreasing the overall annual limit on the dollar value of benefits that existed on March 23, 2010, regardless of whether the plan also imposed a lifetime limit on March 23, 2010.  

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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.