June 24, 2010

This installment of Hall Render's Health Law Broadcast series on health care reform is designed to provide you with the insight, analysis and practical suggestions with respect to the various reform initiatives that will affect your organization.

HEALTH CARE REFORM:  IMPORTANT INFORMATION REGARDING GRANDFATHERED PLAN STATUS

The IRS, the Employee Benefits Security Administration (EBSA) and the Secretary of Health and Human Services (HHS) have again issued interim final regulations for group health plans.  The new interim final regulations provide guidance on what constitutes a "grandfathered health plan" for purposes of implementing the Patient Protection and Affordable Care Act and its reconciliation-related amendments (referred to collectively as the "Act").   

Grandfathered health plan status is important because some provisions of the Act either do not apply to grandfathered health plans or they have a delayed effective date.  The interim final regulations make clear that the Act applies to group health plans (both insured and self-funded), nonfederal governmental plans, church plans and collectively bargained health plans.  Retiree-only plans and plans that provide "excepted benefits" are not required to comply with the insurance market reform provisions of the Act. 

What is a "Grandfathered Health Plan?"

Non-union Plans

The general definition of a grandfathered health plan is coverage provided by a group health plan in which an individual was enrolled on March 23, 2010.  For a group health plan that provided multiple medical benefit options on March 23, 2010, each medical benefit options is considered a separate grandfathered health plan.  Newly hired employees can enroll in a grandfathered health plan.  In addition, existing employees can add new dependents to a grandfathered health plan, as well as enroll in a grandfathered health plan if they were not previously enrolled in the plan.  A plan can maintain its grandfathered health plan status as long as it continuously covers at least one person, not necessarily the same person, from March 23, 2010 on and as long as it does not make changes to the plan that would cause it to lose its grandfathered status.

Collectively Bargained Plans

A collectively bargained plan is a grandfathered health plan if it is maintained pursuant to a collective bargaining agreement that was ratified before March 23, 2010.  Collectively bargained plans retain grandfathered status at least until the date on which the last of the collective bargaining agreements relating to the coverage that was in effect on March 23, 2010 terminates.  If a collectively bargained plan is a fully insured plan, a change in issuers during the term of the collective bargaining agreement will not cause the plan to lose its grandfathered status.

Requirements to Maintain Grandfathered Health Plan Status

All grandfathered group health plans must include in any plan materials provided to participants and beneficiaries a statement describing the benefits under the plan and a statement that the plan believes it is a grandfathered health plan under the Act.  The statement must also contain contact information for questions and complaints.  Model language is provided in the interim regulations.

A grandfathered health plan must also maintain records documenting the terms of the plan coverage that was in effect on March 23, 2010 and any other documents to support the position that the plan is a grandfathered health plan.  This documentation must be maintained for as long as the plan takes the position that it is a grandfathered health plan.

How Does a Grandfathered Health Plan Lose its Grandfathered Status?

A grandfathered health plan can lose grandfathered status in many ways.  The most prominent means by which a plan can lose grandfathered status are the following:

Elimination of Benefits

If the plan eliminates all or substantially all benefits to diagnose a condition, the plan will lose its grandfathered status. 

Increases in Cost-sharing Requirements

If the plan makes any increase in a percentage cost-sharing requirement, measured from March 23, 2010, the plan will lose its grandfathered status.  Percentage cost sharing requirements are items such as a coinsurance amount.

If the plan makes any increase in a fixed amount cost-sharing requirement other than a copayment, such as a deductible or out-of-pocket limit, the plan will lose its grandfathered status if the total percentage increase measured from March 23, 2010 is greater than the maximum percentage increase, as defined in the regulations.

If the plan increases a fixed-amount copayment (e.g., $10 copayment for office visits), the plan will lose grandfathered status if the total increase, measured from March 23, 2010, is more than the greater of $5 increased by medical inflation or the maximum percentage increase.

Decrease in Contribution Rate by Employers and Employee Organizations

If the employer or employee organization decreases its contribution rate toward the cost of any tier of coverage or decreases its contribution rate based on a formula for any class of similarly situated individuals by more than 5% below the contribution rate on March 23, 2010, the plan will lose its grandfathered status. 

Changes in Annual Limits

A plan that did not have an overall annual limit or lifetime limit on the dollar value of all benefits will lose its grandfathered status if the plan imposes 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 not an overall annual limit on the dollar value of all benefits will lose its grandfathered status if the plan imposes an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit in effect on March 23, 2010.

A plan that, on March 23, 2010, imposed an overall annual limit on the dollar value of all benefits will lose its grandfathered status if the plan decreases the dollar value of the annual limit.

Elimination of a Benefit Option

In addition to these plan design changes that can cause a plan to lose its grandfathered status, if a group health plan that has multiple benefit options eliminates one of those options, the remaining benefit options may lose their grandfathered status if there is not legitimate business reason for the change and depending on the benefits provided under the option that remains.  For example, employer's group health plan offers an HMO and a PPO option to its employees, each with varying benefits and features and each of which is a grandfathered health plan.  If the employer eliminates the PPO option, the HMO may lose its grandfathered status if the PPO option would have lost its grandfathered status if that option were retained but changed to mirror the HMO option.

This is just a summary of the interim final regulations.  As you review this information, or if you are contemplating making any changes to your group health plans, please contact Tara Slone at (248) 457-7870 or your regular Hall Render attorney with any questions you may have.  We will issue additional Broadcasts as more guidance becomes available.

Visit our Health Law Broadcast at hallrender.com/reform for a comprehensive listing of health care reform resources.  Also sign up for health care reform alerts and periodic updates as we continue to monitor this important issue.