The Affordable Care Act (ACA) provides that certain group health plans that were in existence on March 23, 2010 when the healthcare reform law was enacted are not subject to all of the insurance reforms including in the Act. These plans are referred to as grandfathered health plans. The ACA balances the objective of preserving the ability of individuals to maintain their existing coverage with the goals of ensuring access to affordable essential coverage and improving the quality of coverage by guaranteeing that an individual may maintain the coverage in which he or she was enrolled on March 23, 2010. This is achieved by providing that various requirements of the insurance reforms do not apply to such plans or coverage, even if the coverage is renewed after March 23, 2010. However, to ensure access to coverage with certain particularly significant protections, the ACA requires grandfathered health plans to comply with a subset of the ACA's health reform provisions.
Definition of grandfathered health plan coverage. Under the statute and interim final regulations issued jointly by DOL (29 CFR Sec. 2590.715-1251), HHS (45 CFR Sec. 147.140), and IRS (26 CFR Sec. 54.9815-1251T), a group health plan or group or individual health insurance coverage is a grandfathered health plan for individuals enrolled on March 23, 2010. The regulations provide that a group health plan or group health insurance coverage does not cease to be grandfathered health plan coverage because one or more (or even all) individuals enrolled on March 23, 2010, cease to be covered, provided that the plan or group health insurance coverage has continuously covered someone since March 23, 2010, (not necessarily the same person, but at all times at least one person). The determination of grandfathered status is made separately for each benefit package made available under a group health plan or health insurance coverage. However, if an employer enters into an entirely new policy, certificate, or contract of insurance after March 23, 2010, that new policy, certificate, or contract of insurance is not a grandfathered health plan for the individuals in the group health plan. Any policies sold to a new entity after March 23, 2010, will not be a grandfathered health plan even if the health insurance product sold was offered before March 23, 2010.
Reporting and disclosure requirements. To maintain status as a grandfathered health plan, a plan or health insurance coverage must:
Preventing abuse. A group health plan that provided coverage on March 23, 2010, generally is also a grandfathered health plan with respect to new employees (whether newly hired or newly enrolled) and their families who enroll in the grandfathered health plan after March 23, 2010. Any health insurance coverage provided under the group health plan in which an individual was enrolled on March 23, 2010, is also a grandfathered health plan. To prevent abuse, the regulations provide that if the principal purpose of a merger, acquisition, or similar business restructuring is to cover new individuals under a grandfathered health plan, the plan ceases to be a grandfathered health plan. The goal of this rule is to prevent grandfather status from being bought and sold as a commodity in commercial transactions.
The regulations also contain a second anti-abuse rule designed to prevent a plan or issuer from circumventing the limits on changes that cause a plan or health insurance coverage to cease to be a grandfathered health plan. In a situation where employees who previously were covered by a grandfathered health plan are transferred to another grandfathered health plan and the resulting change in coverage that would result in loss of grandfathered status if those changes were made directly to the plan from which the employees were transferred, the new plan will lose its grandfathered status.
Coverage requirements. A grandfathered health plan must continue to comply with the statutory requirements that applied prior to the changes enacted by the ACA, except to the extent supplanted by changes made by the ACA including the HIPAA portability and nondiscrimination requirements, the GINA requirements, the mental health parity provisions, the Newborns’ and Mothers’ Health Protection Act, the Women’s Health and Cancer Rights Act, and Michelle’s Law. The ACA provisions that apply to grandfathered plans include:
Benefit reductions. The elimination of all or substantially all benefits to diagnose or treat a particular condition causes a plan or health insurance coverage to cease to be a grandfathered plan. For example, if a plan eliminates all benefits for cystic fibrosis, the plan ceases to be a grandfathered health plan even though this condition may affect relatively few covered individuals. The elimination of benefits for any necessary element to diagnose or treat a condition is considered the elimination of all or substantially all benefits to diagnose or treat that condition. For example, if a plan provides benefits for a particular mental health condition, the treatment for which is a combination of counseling and prescription drugs, and subsequently eliminates benefits for counseling, the plan is treated as having eliminated all or substantially all benefits for the condition.
Increases in percentage cost-sharing requirements. Any increase in a percentage cost-sharing requirement (such as coinsurance) causes a plan to cease to be a grandfathered health plan.
Increases in fixed-amount cost-sharing requirements. Fixed-amount cost-sharing requirements include, for example, a $500 deductible, a $30 copayment, or a $2,500 out-of-pocket limit. For fixed-amount cost-sharing requirements other than copayments, a plan ceases to be a grandfathered health plan if there is an increase, since March 23, 2010, that is greater than the maximum percentage increase. The maximum percentage increase is defined as medical inflation (from March 23, 2010) plus 15 percentage points. For this purpose, medical inflation is defined by reference to the overall medical care component of the Consumer Price Index for All Urban Consumers, unadjusted (CPI), published by the Department of Labor.
For fixed-amount copayments, a plan ceases to be a grandfathered health plan if there is an increase since March 23, 2010, in the copayment that exceeds the greater of (A) the maximum percentage increase or (B) $5.00 increased by medical inflation.
Decreases in employer contribution rates. If the contribution rate is based on the cost of coverage, a group health plan ceases to be a grandfathered health plan if the employer decreases its contribution rate towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5 percentage points below the contribution rate on March 23, 2010. For this purpose, contribution rate is defined as the amount of contributions made by an employer to the total cost of coverage, expressed as a percentage. The total cost of coverage is determined in the same way as the applicable premium is calculated for COBRA purposes. In the case of a self-insured plan, contributions by an employer are calculated by subtracting the employee contributions towards the total cost of coverage from the total cost of coverage.
If the contribution rate is based on a formula, such as hours worked or tons of coal mined, a group health plan coverage ceases to be a grandfathered health plan if the employer decreases its contribution rate towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5 percent below the contribution rate on March 23, 2010.
The imposition of a new or modified annual limit. A plan that did not impose an overall annual or lifetime limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan an overall annual limit on the dollar value of benefits. A plan that, on March 23, 2010, imposed an overall lifetime limit on the dollar value of all benefits but no overall annual limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on March 23, 2010. A plan that, on March 23, 2010, imposed an overall annual limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan decreases the dollar value of the annual limit regardless of whether the plan or health insurance coverage also imposed an overall lifetime limit on March 23, 2010.
Changes that do not result in the loss of grandfathered status. Changes other than the changes described above will not cause a plan to cease to be a grandfathered health plan. Examples include changes to premiums, changes to comply with federal or state legal requirements, changes to voluntarily comply with provisions of the ACA, and changes in third party administrators.
Transitional rules. The regulations provide transitional rules for plans that made changes after the enactment of the ACA on March 23, 2010, pursuant to a legally binding contract entered into prior to enactment, made changes to the terms of health insurance coverage pursuant to a filing before March 23, 2010, with a state insurance department, or made changes pursuant to written amendments to a plan that were adopted prior to March 23, 2010. If a plan or issuer made changes in any of these situations, the changes are deemed to be part of the plan terms on March 23, 2010, even though they were not then effective and are not taken into account in considering whether the plan or health insurance coverage remains a grandfathered health plan.
Because status as a grandfathered health plan is determined in relation to coverage on March 23, 2010, the date of enactment of the ACA, the DOL, HHS, and IRS will take into account good-faith efforts to comply with a reasonable interpretation of the statutory requirements. The agencies may disregard changes to plan and policy terms adopted before June 14, 2010, when the regulations were made public, that only modestly exceed those changes that would result in the loss of grandfathered status.
In addition, the regulations provide employers with a grace period within which to revoke or modify any changes adopted prior to June 14, 2010. Thus, grandfathered status is preserved if the changes are revoked, and the plan is modified to bring it within the limits for retaining grandfather status, effective as of the first day of the first plan year beginning on or after September 23, 2010.
For purposes of the grace period and of the reasonable good-faith standard, changes will be considered to have been adopted before June 14, 2010, if the changes are effective:
Any new standards that are more restrictive than the interim final regulations will only apply prospectively. In addition, the agencies may issue administrative guidance other than in the form of regulations to clarify or interpret the rules contained in the interim final regulations.
Definition of grandfathered health plan coverage. Under the statute and interim final regulations issued jointly by DOL (29 CFR Sec. 2590.715-1251), HHS (45 CFR Sec. 147.140), and IRS (26 CFR Sec. 54.9815-1251T), a group health plan or group or individual health insurance coverage is a grandfathered health plan for individuals enrolled on March 23, 2010. The regulations provide that a group health plan or group health insurance coverage does not cease to be grandfathered health plan coverage because one or more (or even all) individuals enrolled on March 23, 2010, cease to be covered, provided that the plan or group health insurance coverage has continuously covered someone since March 23, 2010, (not necessarily the same person, but at all times at least one person). The determination of grandfathered status is made separately for each benefit package made available under a group health plan or health insurance coverage. However, if an employer enters into an entirely new policy, certificate, or contract of insurance after March 23, 2010, that new policy, certificate, or contract of insurance is not a grandfathered health plan for the individuals in the group health plan. Any policies sold to a new entity after March 23, 2010, will not be a grandfathered health plan even if the health insurance product sold was offered before March 23, 2010.
Reporting and disclosure requirements. To maintain status as a grandfathered health plan, a plan or health insurance coverage must:
- Include a statement, in any plan materials provided to participants or beneficiaries describing the benefits provided under the plan or health insurance coverage, that the plan or health insurance coverage believes that it is a grandfathered health plan within the meaning of section 1251 of the Affordable Care Act; and
- Provide contact information for questions and complaints.
The interim final regulations include the following model language that can be used to satisfy this disclosure requirement:
Recordkeeping requirements. To maintain status as a grandfathered health plan, a plan must also maintain records documenting the terms of the plan or health insurance coverage that were in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health 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 records must be available for examination by participants, beneficiaries, or state or federal agency officials to verify the status of the plan as a grandfathered health plan. The plan or issuer must maintain the records and make them available for examination for as long as the plan takes the position that it is a grandfathered health plan.This [group health plan or health insurance issuer] believes this [plan or coverage] is a "grandfathered health plan" under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits. Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform. This website has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market 93 policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]
Preventing abuse. A group health plan that provided coverage on March 23, 2010, generally is also a grandfathered health plan with respect to new employees (whether newly hired or newly enrolled) and their families who enroll in the grandfathered health plan after March 23, 2010. Any health insurance coverage provided under the group health plan in which an individual was enrolled on March 23, 2010, is also a grandfathered health plan. To prevent abuse, the regulations provide that if the principal purpose of a merger, acquisition, or similar business restructuring is to cover new individuals under a grandfathered health plan, the plan ceases to be a grandfathered health plan. The goal of this rule is to prevent grandfather status from being bought and sold as a commodity in commercial transactions.
The regulations also contain a second anti-abuse rule designed to prevent a plan or issuer from circumventing the limits on changes that cause a plan or health insurance coverage to cease to be a grandfathered health plan. In a situation where employees who previously were covered by a grandfathered health plan are transferred to another grandfathered health plan and the resulting change in coverage that would result in loss of grandfathered status if those changes were made directly to the plan from which the employees were transferred, the new plan will lose its grandfathered status.
Coverage requirements. A grandfathered health plan must continue to comply with the statutory requirements that applied prior to the changes enacted by the ACA, except to the extent supplanted by changes made by the ACA including the HIPAA portability and nondiscrimination requirements, the GINA requirements, the mental health parity provisions, the Newborns’ and Mothers’ Health Protection Act, the Women’s Health and Cancer Rights Act, and Michelle’s Law. The ACA provisions that apply to grandfathered plans include:
- The prohibition of preexisting condition exclusion or other discrimination based on health status
- The prohibition on excessive waiting periods
- The prohibition on lifetime limits and the restriction and later prohibition on annual limits
- The prohibition on rescissions
- The extension of dependent coverage until age 26
- The development and utilization of uniform explanation of coverage documents and standardized definitions
- The bringing down of the cost of healthcare coverage (for insured coverage)
Benefit reductions. The elimination of all or substantially all benefits to diagnose or treat a particular condition causes a plan or health insurance coverage to cease to be a grandfathered plan. For example, if a plan eliminates all benefits for cystic fibrosis, the plan ceases to be a grandfathered health plan even though this condition may affect relatively few covered individuals. The elimination of benefits for any necessary element to diagnose or treat a condition is considered the elimination of all or substantially all benefits to diagnose or treat that condition. For example, if a plan provides benefits for a particular mental health condition, the treatment for which is a combination of counseling and prescription drugs, and subsequently eliminates benefits for counseling, the plan is treated as having eliminated all or substantially all benefits for the condition.
Increases in percentage cost-sharing requirements. Any increase in a percentage cost-sharing requirement (such as coinsurance) causes a plan to cease to be a grandfathered health plan.
Increases in fixed-amount cost-sharing requirements. Fixed-amount cost-sharing requirements include, for example, a $500 deductible, a $30 copayment, or a $2,500 out-of-pocket limit. For fixed-amount cost-sharing requirements other than copayments, a plan ceases to be a grandfathered health plan if there is an increase, since March 23, 2010, that is greater than the maximum percentage increase. The maximum percentage increase is defined as medical inflation (from March 23, 2010) plus 15 percentage points. For this purpose, medical inflation is defined by reference to the overall medical care component of the Consumer Price Index for All Urban Consumers, unadjusted (CPI), published by the Department of Labor.
For fixed-amount copayments, a plan ceases to be a grandfathered health plan if there is an increase since March 23, 2010, in the copayment that exceeds the greater of (A) the maximum percentage increase or (B) $5.00 increased by medical inflation.
Decreases in employer contribution rates. If the contribution rate is based on the cost of coverage, a group health plan ceases to be a grandfathered health plan if the employer decreases its contribution rate towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5 percentage points below the contribution rate on March 23, 2010. For this purpose, contribution rate is defined as the amount of contributions made by an employer to the total cost of coverage, expressed as a percentage. The total cost of coverage is determined in the same way as the applicable premium is calculated for COBRA purposes. In the case of a self-insured plan, contributions by an employer are calculated by subtracting the employee contributions towards the total cost of coverage from the total cost of coverage.
If the contribution rate is based on a formula, such as hours worked or tons of coal mined, a group health plan coverage ceases to be a grandfathered health plan if the employer decreases its contribution rate towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5 percent below the contribution rate on March 23, 2010.
The imposition of a new or modified annual limit. A plan that did not impose an overall annual or lifetime limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan an overall annual limit on the dollar value of benefits. A plan that, on March 23, 2010, imposed an overall lifetime limit on the dollar value of all benefits but no overall annual limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on March 23, 2010. A plan that, on March 23, 2010, imposed an overall annual limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan decreases the dollar value of the annual limit regardless of whether the plan or health insurance coverage also imposed an overall lifetime limit on March 23, 2010.
Changes that do not result in the loss of grandfathered status. Changes other than the changes described above will not cause a plan to cease to be a grandfathered health plan. Examples include changes to premiums, changes to comply with federal or state legal requirements, changes to voluntarily comply with provisions of the ACA, and changes in third party administrators.
Transitional rules. The regulations provide transitional rules for plans that made changes after the enactment of the ACA on March 23, 2010, pursuant to a legally binding contract entered into prior to enactment, made changes to the terms of health insurance coverage pursuant to a filing before March 23, 2010, with a state insurance department, or made changes pursuant to written amendments to a plan that were adopted prior to March 23, 2010. If a plan or issuer made changes in any of these situations, the changes are deemed to be part of the plan terms on March 23, 2010, even though they were not then effective and are not taken into account in considering whether the plan or health insurance coverage remains a grandfathered health plan.
Because status as a grandfathered health plan is determined in relation to coverage on March 23, 2010, the date of enactment of the ACA, the DOL, HHS, and IRS will take into account good-faith efforts to comply with a reasonable interpretation of the statutory requirements. The agencies may disregard changes to plan and policy terms adopted before June 14, 2010, when the regulations were made public, that only modestly exceed those changes that would result in the loss of grandfathered status.
In addition, the regulations provide employers with a grace period within which to revoke or modify any changes adopted prior to June 14, 2010. Thus, grandfathered status is preserved if the changes are revoked, and the plan is modified to bring it within the limits for retaining grandfather status, effective as of the first day of the first plan year beginning on or after September 23, 2010.
For purposes of the grace period and of the reasonable good-faith standard, changes will be considered to have been adopted before June 14, 2010, if the changes are effective:
- Before June 14, 2010,
- On or after June 14, 2010, pursuant to a legally binding contract entered into before that date,
- On or after June 14, 2010, pursuant to a filing before that date with a state insurance department, or
- On or after that date pursuant to written amendments to a plan that were adopted before that date.
- Changes to plan structure (such as switching from a health reimbursement arrangement to major medical coverage or from an insured product to a self-insured product);
- Changes in a network plan’s provider network, and if so, what magnitude of changes would have to be made;
- Changes to a prescription drug formulary, and if so, what magnitude of changes would have to be made; or
- Any other substantial change to the overall benefit design.
Any new standards that are more restrictive than the interim final regulations will only apply prospectively. In addition, the agencies may issue administrative guidance other than in the form of regulations to clarify or interpret the rules contained in the interim final regulations.
