What is a Grandfathered Health Plan?
A grandfathered health plan is an insured or self-funded health plan that covered at least one individual on March 23, 2010 and has continually covered at least one person since that time (even if not the same person), and has not made changes since that date that cause it to lose its grandfathered status. A list of changes that will cause a plan to relinquish grandfather status is later in this article.
Why does it Matter if a Plan is Grandfathered or Not?
While most health care reform provisions apply to both grandfathered and non-grandfathered plans, the following provisions do not apply to grandfathered plans. Thus, if a plan loses its grandfathered status, the following HCR provisions will apply to it as of the date it loses grandfather status (there is no delayed effective date until the first day of the next plan year):
- Nondiscrimination rules will apply to insured health plans. (Similar nondiscrimination rules – under IRC section 105(h) – already apply to self-funded plans.) If an insured plan discriminates in favor of “highly compensated employees” as to eligibility or benefits, the plan sponsor must pay an excise tax equal to $100 per day per employee who is discriminated against, to a maximum of $500,000 per year. The enforcement date has been delayed, and it is not known at this time (January 22, 2013) when the non-discrimination rules will be enforced. Per IRS Notice 2011-1 (December 2010), the nondiscrimination rules will not apply until the first day of the plan year beginning some period of time after regulations are issued.
- First-dollar coverage of “Preventive services”. Non-grandfathered group health plans must cover specified preventive services and cannot require that participants first meet a deductible or pay any portion of the cost. For examples of preventive services, see the Leavitt white paper on “First-dollar Coverage” of Preventive Services. Additional information on preventive services is at: http://www.healthcare.gov/law/provisions/preventive/moreinfo.html and http://www.healthcare.gov/center/regulations/prevention.html (which will be updated on an ongoing basis).
- “Patient protections” apply. These include the following, and plans must notify participants of these:
- If plan has primary care providers (PCPs), it must allow participants to select the PCP provider and pediatrician they want (in-network);
- Plan must allow direct access to OB-GYNs and pediatricians without a referral;
- Plan cannot require prior authorization or increased cost sharing for out-of-network emergency services than for in-network services, nor impose more burdensome administrative requirements.
- New additional claims and appeals processes and procedures. A non-grandfathered plan must comply with the additional processes and procedures mandated by HCR law (which modify and add to the existing claims and appeals and review procedures under ERISA), and must provide notice to participants. Three major changes are:Annual quality report. HHS has not yet issued guidance on this, although guidance was due by March 23, 2012, so it’s not clear if the reporting will be due by the end of 2012 or sometime in 2013 for the 2012 year.
- When a plan issues a notice of adverse benefit determination (i.e., a claim denial), it also must state that the recipient has a right to request the diagnosis and treatment codes (and their meanings), and must provide the information if requested.
- Plans and insurers must provide denial notices (or a one-sentence statement about the availability of non-English language services) in the same non-English language if 10% or more of the population residing in the claimant’s county are literate only in that non-English language.
- State external review processes must be either “NAIC-parallel” or “NAIC-similar.”
- Coverage for clinical trials. In 2014, non-grandfathered plans must provide coverage for clinical trials for life-threatening diseases. This does not apply to grandfathered plans.
- “Essential Health Benefits.” In 2014, small (up to 50 employees) insured non-grandfathered plans must provide “essential health benefits.” Grandfathered plans and plans of employers with more than 50 employees will not be required to, but they must provide the same (or better) benefits as they provided on March 23, 2010.
Changes that Result in Loss of Grandfather Status
- Elimination of all or substantially all benefits to diagnose or treat a particular condition.
- For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
- Any increase in the employee percentage of co-insurance charges.
- Co-insurance requires a patient to pay a fixed percentage of a charge (e.g., 20% of a hospital bill).
- Increase in a deductible or out-of-pocket maximum by an amount that exceeds medical inflation plus 15 percentage points.
- In recent years, medical costs have risen an average of 4-5% annually, so this formula would allow deductibles to increase by 19-20% between 2010 and 2011 (i.e., 15% + 4-5%), and by 23-25% between 2010 and 2012 (i.e., 15% + 8-10%).
- Increase in an employee co-payment by an amount that exceeds medical inflation plus 15 percentage points (or, if greater, $5 plus medical inflation).
- A co-payment is a fixed-dollar amount patients must pay for doctor’s office visits and other services.
- Decrease in the employer contribution rate toward the cost of coverage by more than 5 percentage points below the employer contribution rate on March 23, 2010.
- This is applied separately for each tier of coverage (e.g., employee-only, employee-plus-one, employee-plus-two)
- For example, a plan will lose grandfather status if the plan sponsor decreases the employer share for employee-only coverage from 85% to 75%.
- Imposition of new annual limits if the plan did not include them on March 23, 2010, or a decrease in existing annual limits below the lifetime limit.
- Changing employees to a less generous plan; corporate mergers/sales to avoid compliance.
Until November 16, 2010, changing carriers was also an action that would cause an insured plan to lose its grandfather status. However, the Departments amended the interim final rule on grandfathering to delete this as one of the prohibited actions, subject to certain limitations.
Changes that do Not Result in Loss of Grandfather Status
The following changes will not cause a plan to lose grandfather status:
- Change in total premiums
- Making some structural changes
- Change in provider network
- Change in Rx formulary
- Adding new employees/enrollees
- Enrolling new dependents
- Making changes to comply with the law (“normal adjustments”)
Notice Requirements for Grandfathered Plans
If a plan claims grandfather status, the following requirements apply for as long as the plan or issuer takes the position that the plan or policy is grandfathered. Note that recent DOL audits ask whether the group health plan claims grandfather status, require documentation of it if they do, and require evidence of compliance with the notice requirement.
- The Plan must notify plan participants that the plan considers itself grandfathered. Either the plan sponsor or the carrier (or both or one but not the other) could provide this notice to participants. The DOL has published a Model Notice for this purpose, at: http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc.
- The plan or issuer must maintain records documenting the terms of the plan or policy in effect on March 23, 2010, and any other documents necessary to verify, explain or clarify its status as a grandfathered plan. Such documents could include prior and current plan documents, health insurance policies, certificates or contracts of insurance, summary plan descriptions, documentation of premiums or the cost of coverage, and documentation of required employee contribution rates.
- The plan or issuer must make such records available for examination by a participant, beneficiary, individual policy subscriber, or State or Federal agency official who requests to inspect the documents to verify the status of the plan or health insurance coverage as a grandfathered health plan.
Many carriers have said they will not keep or provide the substantiation documentation if they are not maintaining grandfather status for their group health products. Thus, if the plan sponsor maintains grandfather status for its insured group health plan but the underlying insurer implements health care reform provisions that apply to non-grandfathered plans, it will be solely the plan sponsor’s responsibility to notify employees of the plan’s grandfather status and to maintain appropriate records.
Links to government guidance on grandfathering:
- November 16, 2010 Amendment to interim final regulations, allowing an insured group health plan to maintain its grandfather status even if it changes carriers:
Notice on HHS website: http://www.hhs.gov/ociio/regulations/grandfather/factsheet.html
The Amendment itself: http://www.ofr.gov/OFRUpload/OFRData/2010-28861_PI.pdf
- FAQs on Grandfathering: http://healthreform.gov/about/grandfathering.html
- Fact Sheet on Grandfathering: http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html
- Regulations on Grandfathering: http://webapps.dol.gov/FederalRegister/HtmlDisplay.aspx?DocId =23967&AgencyId=8&DocumentType=2
- Summary chart of provisions that apply to grandfathered plans: http://www.dol.gov/ebsa/pdf/grandfatherregtable.pdf
- DOL Model Notice that plan is grandfathered: http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc