Employee Benefits-Why Your Group Health Plan Should Keep Its Grandfathered Status, And How To Do So

Advantages Of Grandfather Status.

Your group health plan may still be treated as a “grandfathered plan” for purposes of the Affordable Care Act (the “ACA”). And you should try to keep it that way. Why? A grandfathered group health plan is NOT subject to some of the more cumbersome requirements of the ACA. The requirements which do not apply to a grandfathered plan include:

–the more stringent internal review and an external review of denied claims for benefits;

–the guaranteed availability and renewability of health care coverage;

–the rights pertaining to the choice of a health care provider (for example, the right to choose a primary care provider, to designate a pediatrician as a child’s primary care provider and, without obtaining a referral, to choose a gynecologist or obstetrician);

–the limit on annual out-of-pocket costs for health care, (such costs include deductibles, co-insurance and co-payments);

–if the plan provides for emergency services: (i) covering such services without prior authorization and without regard to whether the health care provider furnishing the services is a participating network provider, and (ii) that the copayment and coinsurance for out-of-network emergency care does not exceed the cost-sharing requirements that would have been imposed if the services were provided in-network;

–along with self-insured and large group market plans, the need to offer essential health benefits (although the ACA prohibits such plans from imposing annual and lifetime dollar limits on any essential health benefits that are offered);

–the coverage of preventive care without employee cost-sharing, including contraception for women; and

–restrictions on the variation in premium rates charged by a health insurance issuer.

29 CFR § 2590.715-1251(c)

Obtaining And Keeping Grandfather Status.

Becoming a Grandfathered Plan-A group health plan will be a grandfathered plan if an individual was enrolled in the plan on March 23, 2010, and the plan does not lose its grandfathered status under the regulations as discussed below. The plan does not lose its status because one or more (or even all) individuals enrolled on March 23, 2010 cease to be covered, so long as the plan has continuously covered someone since that date (not necessarily the same person, but at all times at least one person).

In addition, the plan does not cease to be grandfathered merely because the plan (or its sponsor) enters into a new policy, certificate or contract of insurance after March 23, 2010 (except one that is effective before March 15, 2010).

Note: Grandfathered status of the plan is determined separately with respect to each benefit package offered.  According to the preamble to the regulations, if the plan offers three benefit package options-a PPO (preferred provider organization), a POS (point of service) arrangement, and an HMO (health maintenance organization)-the PPO, POS arrangement and HMO are each treated as a separate benefit package. However, the loss of grandfathered status by one package will not affect the status of the other packages under the plan.

29 CFR § 2590.715-1251(a)(1)

Statement of Grandfathered Status-To maintain grandfathered status, the plan must include a statement that it believes it is a grandfathered plan, and must provide contact information for questions and complaints, in any summary of benefits provided under the plan (e.g., the summary plan description). The regulations have model language which can be used for this purpose.

29 CFR § 2590.715-1251(a)(2)

Documentation– To maintain grandfathered status, the plan must maintain records documenting the terms of the plan in connection with the coverage in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan. It must make these records available for examination on request. Further, if the plan enters into a new policy, certificate, or contract of insurance, the plan must provide to the new health insurance issuer documentation of plan terms (including benefits, cost sharing, employer contributions, and annual dollar limits) under the prior health coverage sufficient to determine whether a change causing a cessation of grandfathered health plan status under the regulations has occurred.

29 CFR § 2590.715-1251(a)(3)

New Employees- A grandfathered plan will be treated as such for new employees (whether newly hired or newly enrolled) and their families enrolling in the plan after March 23, 2010. Further, the addition of a new contributing employer or new group of employees of an existing contributing employer to a grandfathered multiemployer health plan will not affect the plan’s grandfathered status.

However, attention must be paid to the regulation’s anti-abuse rules. Under these rules, 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. In addition, a plan will lose its grandfathered status, if:

(1) employees are transferred into the grandfathered plan (the “transferee plan”), from another grandfathered group health plan in which they were covered on March 23, 2010 (the “transferor plan”);

(2) comparing the terms of the transferee plan with those of the transferor plan (as in effect on March 23, 2010), and treating the transferee plan as if it were an amendment of the transferor plan, would cause a loss of the transferor plan’s grandfathered status under the discussion below of “Changes That Will Cause Loss Of Grandfathered Status”; and

(3) there was no bona fide employment-based reason to transfer the employees into the transferee plan.

For this purpose, changing the terms or cost of coverage is not a bona fide employment-based reason. Bona fide employment-based reasons include when:

a benefit package is being eliminated because the issuer is exiting the market;

a benefit package is being eliminated because the issuer no longer offers the product to the employer;

— low or declining participation by plan participants in the benefit package makes it impractical for the plan sponsor to continue to offer the benefit package;

a benefit package is eliminated from a multiemployer plan as agreed upon as part of the collective bargaining process; or

a benefit package is eliminated for any reason and multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred.

29 CFR § 2590.715-1251(b)

Changes That Will Cause Loss Of Grandfathered Status- A plan will lose its grandfathered status when an amendment to plan terms that results in a change described below becomes effective, regardless of when the amendment was adopted. Once grandfather status is lost, it cannot be regained. Again, these rules are applied on a benefit package by benefit package basis.

     Elimination of benefits. The elimination of all or substantially all benefits to diagnose or treat a particular condition causes loss of grandfathered status. For this purpose, 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 a particular condition.

     Increase in percentage cost-sharing requirement. Any increase, measured from March 23, 2010, in a percentage cost-sharing requirement (such as an individual’s coinsurance requirement) causes loss of grandfathered status.

     Increase in a fixed-amount cost-sharing requirement other than a copayment. Any increase in a fixed-amount cost-sharing requirement other than a copayment (for example, a deductible or out-of-pocket limit), determined as of the effective date of the increase, causes loss of grandfathered status, if the total percentage increase in the cost-sharing requirement measured from March 23, 2010 exceeds the “maximum percentage increase” defined below.

     Increase in a fixed-amount copayment. Any increase in a fixed-amount copayment, determined as of the effective date of the increase, causes loss of grandfathered status, if the total increase in the copayment measured from March 23, 2010 exceeds the greater of: (A) an amount equal to $5 increased by “medical inflation” defined below (that is, $5 times medical inflation, plus $5), or (B) the maximum percentage increase, determined by expressing the total increase in the copayment as a percentage.

    Decrease in contribution rate by employers.

When the contribution rate is based on cost of coverage. Grandfathered status is lost if the employer decreases its “contribution rate based on cost of coverage”, defined below, by more than 5 percentage points below the contribution rate for the coverage period that includes March 23, 2010.

–When the contribution rate based on a formula. Grandfathered status is lost if the employer decreases its “contribution rate based on a formula”, as defined below, by more than 5 percent below the contribution rate for the coverage period that includes March 23, 2010.

Notes: An insured group health plan will NOT lose its grandfathered status on a change in the employer contribution rate, unless the issuer knows, or should know, of the change and certain other conditions are met. The addition of a new tier of coverage by itself is not treated as a change in contributions rate. For example, if a plan with self-only as the sole coverage tier added a family coverage tier, the level of employer contributions toward the family coverage would not cause the plan to lose grandfather status. A plan that requires either fixed-dollar employee contributions or no employee contributions will NOT lose grandfathered status solely because the employer contribution rate changes, so long as there continues to be no employee contributions or no increase in the fixed-dollar employee contributions towards the cost of coverage.

     Changes in annual limits.

–Addition of an annual limit. A plan that, on March 23, 2010, did not impose an overall annual or lifetime limit on the dollar value of all benefits loses its grandfathered status if the plan is revised to impose an overall annual limit on the dollar value of benefits. (But see DOL regulation § 2590.715-2711, which prohibits all annual dollar limits on essential health benefits for plan years beginning on or after January 1, 2014).

–Decrease in limit for a plan or coverage with only a lifetime limit. 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, loses its grandfather status 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. (But see DOL regulation § 2590.715-2711, which prohibits all annual dollar limits on essential health benefits for plan years beginning on or after January 1, 2014).

–Decrease in limit for a plan or coverage with an annual limit. A plan that, on March 23, 2010, imposed an overall annual limit on the dollar value of all benefits loses its grandfather status if the plan decreases the dollar value of the annual limit (regardless of whether the plan also imposed an overall lifetime limit on March 23, 2010 on the dollar value of all benefits). (But see DOL regulation § 2590.715-2711, which prohibits all annual dollar limits on essential health benefits for plan years beginning on or after January 1, 2014).

29 CFR § 2590.715-1251(g)(1)

Definitions-

–Medical inflation defined. The term “medical inflation” means the increase since March 2010 in the overall medical component of the Consumer Price Index for All Urban Consumers (CPI-U) (unadjusted) published by the Department of Labor using the 1982-1984 base of 100, computed as stated in the regulations.

–Maximum percentage increase defined. The term “maximum percentage increase” means medical inflation, as defined above, expressed as a percentage, plus 15 percentage points.

–Contribution rate based on cost of coverage. The term “contribution rate based on cost of coverage” means the amount of contributions made by an employer compared to the total cost of coverage, expressed as a percentage. The total cost of coverage is determined in the same manner as the applicable premium is calculated for purposes of COBRA continuation coverage. In the case of a self-insured plan, contributions by an employer are treated as being equal to the total cost of coverage minus the employee contributions towards the total cost of coverage.

–Contribution rate based on a formula. The term “contribution rate based on a formula” means the formula itself, for plans that, on March 23, 2010, made contributions based on a formula (such as hours worked or tons of coal mined).

29 CFR § 2590.715-1251(g)(3)