Employee Benefits-Government Issues Guidance On What Constitutes A Grandfathered Plan Under New Health Care Rules

The recent health care legislation has significantly overhauled the requirements pertaining to health care plans. However, some of the more important requirements do not apply to a “grandfathered” health care plan. Among these nonapplicable requirements are:

–no discrimination in favor of highly-paid employees;

–preventive care services must be offered with no deductibles or cost sharing;

–guaranteed access to OB-GYNs and pediatricians must be provided; and
–an appeals process must be available, which includes external review of denied claims.

Due to the exemption from the above requirements, it becomes important to identify a “grandfathered” plan. The Internal Revenue Service (“IRS”), Department of Labor (“DOL”) and the Department of Health and Human Services (“HHS”) has provided guidance for making this identification, in the form of a Fact Sheet, FAQs and proposed and interim regulations. Under this guidance, a group health care plan is a “grandfathered” plan with respect to any individual who is enrolled in the plan on March 23, 2010. A plan does not cease to be a “grandfathered” plan merely because one or more (or even all) of the individuals enrolled on March 23, 2010 cease to be covered by the plan. If family members of an individual, who is enrolled in the grandfathered plan as of March 23, 2010, enroll in the plan after that date, the plan is also a “grandfathered” plan with respect to those family members. A group health plan, which provided coverage on March 23, 2010, is a “grandfathered” plan with respect to new employees (whether newly hired or newly enrolled) and their families who enroll after that date. The plan must provide certain information to participants, and maintain records, pertaining to its grandfathered status (the regs have model language for this purpose).

According to the Fact Sheet, a “grandfathered” plan, as in effect on March 23, 2010, cannot make any of the following changes, or it will lose its status as such:

–it cannot significantly cut or reduce benefits (e.g., stop covering diabetes, cystic fibrosis or HIV/AIDS);

–it cannot raise co-insurance charges (e.g., if the plan imposes a fixed percentage of a charge for a medical service, such as 20% of a hospital bill, this percentage cannot be increased);

–it cannot significantly raise co-payment charges or deductibles;

–it cannot significantly lower employer contributions (that is, it cannot decrease the percent of premiums the employer pays by more than 5 percentage points);

–it cannot add or tighten an annual limit on what the insurer pays;

–it cannot change insurance companies; and
–it cannot be involved in a business restructuring intended to avoid the new health care requirements.