Grandfathered Health Plans Under the Patient Protection and Affordable Care Act: Maintaining Grandfathered Status Under the Interim Rules
In June of 2010, the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services issued a set of Interim Final Rules (the “Interim Rules”) for group health plans and grandfathered status under the Patient Protection and Affordable Care Act (“PPACA”). The PPACA indicates that certain plans or coverages existing as of March 23, 2010, are only subject to certain provisions of the PPACA. Such plans and coverages are referred to as grandfathered health plans. The Interim Rules address the requirements necessary to be considered a grandfathered health plan under the PPACA, as well as what changes or other actions to a grandfathered health plan might cause the loss of grandfathered status.
To maintain status as a grandfathered health plan under the Interim Rules, a health plan must include, in any plan materials provided to participants, beneficiaries or primary subscribers:
- a statement describing the benefits provided under the plan;
- a statement that the plan is a grandfathered health plan under the PPACA; and
- contact information for questions and complaints.
A grandfathered plan must also maintain records documenting the terms of the plan that were in effect on March 23, 2010, and any other documents necessary to verify or explain its status as a grandfathered health plan.
Note that, under the PPACA and the Interim Rules, subject to certain exceptions, if family members of an individual enrolled in a grandfathered health plan as of March 23, 2010, enroll in the plan after March 23, 2010, the plan maintains its grandfathered status with respect to such family members. Newly-hired employees, as well as current employees not previously covered, can enroll in the health plan without affecting its status in most cases.
The Interim Rules set forth requirements for determining when changes to the terms of a grandfathered health plan will abrogate the grandfathered status. Generally, grandfathered status is lost if the health plan eliminates all, or substantially all, benefits with respect to the diagnosis and treatment of any particular condition. Termination of benefits of “any necessary element to diagnose or treat a condition” will abrogate grandfathered status.
Additionally, the Interim Rules indicate that grandfathered status will cease with respect to health plans that “increase the fixed-amount and the percentage cost-sharing requirements that are imposed with respect to individuals for covered items and services.” With respect to coinsurance, grandfathered status is revoked by any increase in percentage cost-sharing requirements.
Fixed-amount cost-sharing requirements, other than co-pays, cannot be increased more than the amount of medical inflation plus fifteen (15) percentage points without negating grandfathered status. Medical inflation is defined in the Interim Rules by “referencing the overall medical care component of the Consumer Price Index for All Urban Consumers, unadjusted (CPI).” With respect to fixed-amount copayments, grandfathered health plans cannot make an increase of medical inflation plus fifteen (15) percentage points, or five dollars ($5.00) increased by medical inflation, whichever is greater.
The Interim Rules also provide that reduction of the contribution rate by an employer or employee organization can abrogate grandfathered status. Additionally, a health plan cannot impose a new or modified annual limit without losing its grandfathered status.
The Interim Rules also include “transitional rules” for health plans that made changes after the enactment of PPACA on March 23, 2010, but prior to June 14, 2010, when applicable regulations were first made publically available.
In certain circumstances, changes made after the enactment of the PPACA are effectively considered part of the plan prior to the enactment, and therefore not affecting grandfathered status, including changes made to health plan rules pursuant to:
- a legally binding contract entered into prior to March 23, 2010;
- a filing with a state insurance department prior to March 23, 2010; or
- a written amendment to the plan adopted prior to March 23, 2010.
Additionally, the Interim Rules indicate that “good-faith efforts to comply with a reasonable interpretation of the statutory requirements” may protect the grandfathered health plan’s status in the event that changes to the health plan that “only modestly exceed” the requirements in the Interim Rules were made prior to June 14, 2010.
Finally, a grace period is provided within which a health plan may revoke or modify changes adopted prior to June 14, 2010, that would otherwise affect grandfathered status. The plan must revoke or modify any changes outside the limitations set by the Interim Rules, and such revocation or modification must be “effective as of the first day of the first plan or policy year beginning on or after September 23, 2010,” in order to preserve grandfathered status.
While other specific requirements may be required to maintained a health plan as grandfathered under the PPACA in some circumstances, generally these practices should be employed to protect that status.
See the Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act; Federal Register, Vol. 75, No. 116; Thursday, June 17, 2010; Rules and Regulations; p. 34538 et seq.