GRANDFATHERED PLANS
(last revised 11/03/2011, by Lisa Klinger,
J.D.)
What is a grandfathered Health Plan?
A grandfathered health plan is an insured or self-funded health plan that covered
at least one individual on March 23, 2010 and has continually covered at least one
person since that time (even if not the same person), and has not made changes since
that date that cause it to lose its grandfathered status.
Changes that will cause a plan to lose its grandfathered status include:
- Elimination of all or substantially all benefits to diagnose or treat a particular
condition
- For example, if a plan decides to no longer cover care for people with diabetes,
cystic fibrosis or HIV/AIDS.
- Any increase in the employee percentage of co-insurance charges.
- Co-insurance requires a patient to pay a fixed percentage of a charge (e.g., 20%
of a hospital bill).
- Increase in a deductible or out-of-pocket maximum by an amount that exceeds medical
inflation + 15 percentage points
- A deductible means that participants must pay the first bills they receive each
year, up to a specified amount (e.g., the first $500, $1,000, or $1,500 a year).
- In recent years, medical costs have risen an average of 4-to-5% annually, so this
formula would allow deductibles to go up by 19-20% between 2010 and 2011(i.e., 15%
+ 4-5%), or by 23-25% between 2010 and 2012 (i.e., 15% +8-10%).
- For example, a $1,000 annual deductible in 2010 could be increased by $190 or $200
from 2010 to 2011, and this would not cause the plan to lose its grandfather status
.
- Increase in an employee copayment by an amount that exceeds medical inflation plus
15 percentage points (or, if greater, $5 plus medical inflation)
- A co-payment is a fixed-dollar amount patients must pay for doctor’s office visits
and other services. A plan will lose its grandfathered status if it increases those
co-pays by more than the greater of $5 (adjusted annually for medical inflation)
or a percentage equal to medical inflation plus 15 percentage points.
- For example, if a plan raises its copayment from $30 to $50 over the next 2 years,
it will lose its grandfathered status, because this increase is $20 or a 66 2/3%
increase.
- Decrease in the employer contribution rate toward the cost of coverage by more than
5 percentage points below the employer contribution rate on March 23, 2010
- The employer contribution is the portion of the total insurance premium the employer
pays, compared to the portion the employees pay toward their own health care coverage.
This is applied separately for each tier of coverage (e.g., employee-only, employee-plus-one,
employee-plus-two).
- For example, if the plan sponsor decreases the employer share for employee-only
coverage from 85% to 75% and increases the workers’ share of premium from 15% to
25%, the plan will lose its grandfather status.
- Imposition of new annual limits if the plan did not include them on March 23, 2010,
or a decrease in existing annual limits below the lifetime limit
- A plan that did not have an annual dollar limit on March 23, 2010 cannot add one
unless it is replacing a lifetime dollar limit with an annual dollar limit that
is at least as high as the lifetime limit (which is more protective of high-cost
enrollees).
- Changing employees to a less generous plan; corporate mergers/sales to avoid compliance
Until November 16, 2010, changing carriers was also an action that would cause an
insured plan to lose its grandfather status. However, the Departments amended the
interim final rule on grandfathering to delete this as one of the prohibited actions,
subject to certain limitations.
See the notice on the HHS website and
read the Amendment itself.
The following changes will not cause a plan to lose grandfather status:
a. Change in premiums
b. Making some structural changes
c. Change in provider network
d. Change in Rx formulary
e. Adding new employees/enrollees
f. Enrolling new dependents
g. Making changes to comply with the law ("normal adjustments")
Why does it matter if my plan is grandfathered or not?
If your plan loses its grandfathered status, the following HCR provisions will apply
to it:
- Nondiscrimination rules (similar to those under IRC section 105(h) that previously
applied only to self-funded plans). If your plan discriminates in favor of "highly
compensated employees" as to eligibility or benefits, your plan (i.e., the plan
sponsor) must pay an excise tax equal to $100 per day per employee who is discriminated
against. Pursuant to IRS Notice 2011-1 (issued near the end of December 2010), however,
the nondiscrimination rules will not apply until the first day of the plan year
beginning some period of time after regulations are issued. As of November 3, 2011,
regulations had not yet been issued, so it seems the earliest the nondiscrimination
rules could apply would be January 1, 2013 for calendar-year plans.
- First-dollar coverage of "Preventive services". Your plan must cover specified preventive
services and cannot require that participants first meet a deductible or pay any
portion of the cost. Additional information on preventive services is at: http://www.healthcare.gov/law/provisions/preventive/moreinfo.html,
and
http://www.healthcare.gov/center/regulations/prevention.html, (which will
be updated on an ongoing basis).
Some examples of preventive services include:
- Blood pressure, diabetes, and cholesterol tests; many cancer screenings;
- Counseling from health care providers on quitting smoking, losing weight, eating
better, treating depression, and reducing alcohol use;
- Routine vaccines for diseases such as measles, polio, or meningitis;
Flue and pneumonia shots;
- Counseling, screening, and vaccines for healthy pregnancies; Regular well-baby and
well-child visits from birth to age 21.
- Preventive care and screenings for women (for plan years beginning on and after
August 1, 2012)
- "Patient protections" apply. These include:
- If plan has primary care providers (PCPs), it must allow participants to select
the PCP provider and pediatrician they want (in-network), and must notify participants
of this right;
- Plan must allow direct access to OB-GYNs and pediatricians without a referral and
must notify participants of these rights;
- Plan cannot require prior authorization or increased cost sharing for out-of-network
emergency services or impose more burdensome administrative requirements.
- New additional claims and appeals processes and procedures. Your non-grandfathered
plan must comply with the additional processes and procedures mandated by HCR law
(which modify and add to the existing claims and appeals and review procedures under
ERISA), and must provide notice to participants. The enforcement grace period is
in effect until January 1, 2012, at which time three major changes are effective:
- When a plan issues a notice of adverse benefit determination (i.e., claim denial),
it also must state that the recipient has a right to request the diagnosis and treatment
codes (and their meanings), and must provide the information if requested.
- Plans and insurers must provide denial notices (or a one-sentence statement about
the availability of non-English language services) in the same non-English language
if 10% or more of the population residing in the claimant’s county are literate
only in that non-English language.
- State external review processes must be either “NAIC-parallel” or “NAIC-similar.”
- One proposed change that will not apply: The Interim final regulations reduced from
72 hours to 24 hours the time period within which a plan must provide notice of
adjudication of an urgent care claim; however, subsequent amendment to these regulations
reverted back to the current 72 hour timeframe.
Annual quality report. Probably by the end of 2012, non-grandfathered plans will
have to file an annual quality report. The HCR law requires HHS to issue
requirements for these reports by March 23, 2012, and it is expected the HHS guidance
also will specify when plans will have to start filing the report.
Coverage for clinical trials. In 2014 NON-grandfathered plans must provide coverage
for clinical trials for life-threatening diseases. Grandfathered plans will
not have to.
In 2014, small (up to 50 employees) insured NON-grandfathered plans must provide
“essential benefits.” Grandfathered plans and plans of employers with more than
50 employees will not be required to; they just have to provide the same (or better)
benefits they provided on March 23, 2010.
Notice Requirements for Grandfathered Plans
If a plan claims grandfather status, the following requirements apply for as long
as the plan or issuer takes the position that the plan or policy is grandfathered:
- The Plan must notify plan participants that the plan considers itself grandfathered.
Either the plan sponsor or the carrier (or both or one but not the other) could
provide this notice to participants. The DOL has published a Model Notice for this
purpose, which is available at:
http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc.
- The plan or issuer must maintain records documenting the terms of the plan or policy
in effect on March 23, 2010, and any other documents necessary to verify, explain
or clarify its status as a grandfathered plan. Such documents could include intervening
and current plan documents, health insurance policies, certificates or contracts
of insurance, summary plan descriptions, documentation of premiums or the cost of
coverage, and documentation of required employee contribution rates.
- The plan or issuer must make such records available for examination by a participant,
beneficiary, individual policy subscriber, or State or Federal agency official who
requests to inspect the documents to verify the status of the plan or health insurance
coverage as a grandfathered health plan.
Many carriers have said they will not keep the substantiation documentation if they
are not maintaining grandfather status for their group health products. Thus, if
the plan sponsor maintains grandfather status for its insured group health plan
but the underlying insurer implements health care reform provisions that apply to
non-grandfathered plans, it will be solely the plan sponsor’s responsibility to
notify employees of the plan’s grandfather status and to maintain appropriate records.
Links to government guidance on grandfathering:
