The Employee Benefits Security Administration (the “EBSA”) has issued additional FAQs (called “FAQs II“) on the Affordable Care Act. See my blog of September 25 for a discussion of the FAQs issued earlier. FAQs II offers guidance on whether a group health plan has lost its status as a “grandfathered” plan. Generally, a group health plan in existence on March 23, 2010 is initially given grandfather status. This status is very important because it exempts the plan from a number of onerous requirements in the Affordable Care Act, such as discrimination testing and external claims review procedures. Here are the highlights of this guidance:
Factors Causing Loss of Grandfather Status. Paragraph (g)(1) of the Department of Labor’s interim final grandfather regulations provides that any of six changes (measured from March 23, 2010) are considered to change a group health plan so significantly that they will cause the plan to lose its grandfather status. In sum, these six changes are:
1. Elimination of all or substantially all benefits to diagnose or treat a particular condition.
2. Increase in a percentage cost-sharing requirement (e.g., raising an individual’s coinsurance requirement from 20% to 25%).
3. Increase in a deductible or out-of-pocket maximum by an amount that exceeds medical inflation plus 15 percentage points.
4. Increase in a copayment by an amount that exceeds medical inflation plus 15 percentage points (or, if greater, $5 plus medical inflation) (the “copayment increase limit”).
5. Decrease in an employer’s contribution rate towards the cost of coverage by more than 5 percentage points (the “contribution rate decrease limit”).
6. Imposition of annual limits on the dollar value of all benefits below specified amounts.
For a plan that is continuing the same insurance policy, these six changes are the only changes that would cause a loss of grandfather status under the interim final regulations. The Departments involved in health reform are separately considering under what circumstances otherwise grandfathered plans may change insurance policy issuers without losing their grandfather status.
Different Benefit Packages. The issue of whether a group health plan has grandfather status applies on a benefit-package-by-benefit-package basis. Consider a plan which offers three benefit package options – a PPO, a POS arrangement, and an HMO. If the HMO loses grandfather status, that does not mean that the PPO and POS arrangement must also lose grandfather status.
Tiers of Coverage. The contribution rate decrease limit (item 5 above) is applied on a tier-by-tier basis. As a result, if a group health plan modifies the tiers of coverage it had on March 23, 2010 (for example, from self-only and family to a multi-tiered structure of self-only, self-plus-one, self-plus-two, and self-plus-three-or-more), the employer contribution for any new tier would be tested by comparison to the contribution rate for the corresponding tier on March 23, 2010. In this example, if the employer contribution rate for family coverage was 50 percent on March 23, 2010, the employer contribution rate for any new tier of coverage other than self-only (i.e., self-plus-one, self-plus-two, self-plus-three or more) must be within 5 percentage points of 50% (i.e., at least 45 percent). If, however, the plan adds one or more new coverage tiers without eliminating or modifying any previous tiers and those new coverage tiers cover classes of individuals that were not covered previously under the plan, the new tiers are not taken into account in applying the contribution rate decrease limit.
Changes in Cost Sharing. Each change in cost sharing is taken into account separately in determining whether the group health plan has lost grandfather status. For example, if the employer raises the copayment level for a category of services (such as outpatient or primary care) by an amount that exceeds the copayment increase limit (item 4 above), but retains the copayment level for other categories of services (such as inpatient care or specialty care), the entire plan will lose its grandfather status.
Wellness Programs. Group health plans may continue to provide incentives for wellness by providing premium discounts or additional benefits to reward healthy behaviors by participants or beneficiaries, by rewarding high quality providers, and by incorporating evidence-based treatments into benefit plans. However, penalties (such as cost-sharing surcharges) may run afoul of one of the six circumstances (items 1 to 6 above) causing loss of grandfather status, and therefore should be examined carefully.