Health care reform FAQs part VI were posted April 1, 2011 on the DOL website. This latest batch of FAQs addresses whether particular changes will cause a plan to relinquish its grandfather status. The six FAQs, detailed below in this article, include:
(1) examples of “bona fide employment-based reasons” that will not cause a plan to lose it grandfather status;
(2) changes in cost sharing when a generic alternative becomes available for a particular prescription drug that previously had no generic alternative–will not result in loss of grandfather status;
(3) specific example of the interaction of value-based insurance design (VBID) and the no cost-sharing preventive care services requirements–will not result in loss of grandfather status;
(4&5) if a plan amendment is adopted that will cause the plan to lose its grandfather status, the loss of status occurs on the date an amendment becomes effective, regardless of when it is adopted;
(6) a plan that bases the employer contribution amount on a formula will not lose grandfather status if the formula does not change but the total cost of coverage increases and results in a more-than-five-percentage-point decrease in the employer’s contribution rate (compared to what it was on March 23, 2010).
These FAQs are prepared jointly by the three Departments with jurisdiction over implementation and enforcement of the health care reform law: Health and Human Services (HHS), Labor (DOL) and the Treasury.
Summary of Each of the Six FAQs
FAQ 1: Generally, if a plan sponsor transfers employees from one grandfathered plan or benefit package (transferor plan) to another (transferee plan), this will cause the transferee plan to lose its grandfather status if the transferor plan would have lost its grandfather status had it been amended to replicate the terms of the transferee plan. However, the transferee plan will not lose its grandfather status if there is a “bona fide employment-based reason” to transfer the employees. This FAQ lists the following five examples of “bona fide employment-based reasons” and also notes that this is not an exhaustive list and there may be many other bona fide reasons that would not result in loss of grandfather status:
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 (for example, because the employer no longer satisfies the issuer’s minimum participation requirement);
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 multi-employer 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.
FAQ 2: A plan will not lose its grandfather status if it bases the level of cost sharing for brand-name prescription drugs on the classification of the drugs under the plan as having or not having generic alternatives, and a generic alternative becomes available for a particular drug that previously had no generic alternative, which results in an increase in the cost-sharing level for the brand-name drug.
FAQ 3: In a previously-issued FAQ (in Part V), one of the questions dealt with the interaction of value-based insurance design (VBID) and the no cost-sharing preventive care services requirements. This FAQ changes the facts slightly, but the Departments still confirm that a plan would not lose its grandfather status. In that prior FAQ, the plan did not lose its grandfather status if it did not impose a co-payment for a preventive service when performed in an in-network ambulatory surgery center, but did impose a $250 co-payment on the same service provided at an in-network outpatient hospital setting (but waived the co-payment if it would be medically inappropriate to have the preventive service provided in the ambulatory setting.) In this new FAQ, the question is about a plan that, as of March 23, 2010, did not impose a co-payment on similar preventive services whether provided at either an in-network ambulatory surgery center or at an in-network outpatient hospital setting, but now the plan wants to adopt the VBID approach described in the prior FAQ. The Departments confirm that the plan would not relinquish its grandfather status if it made this change.
FAQs 4&5: A plan will lose its grandfather status on the date an amendment becomes effective, if the amendment is one that causes loss of grandfather status. Thus, if a plan sponsor decides mid-year to adopt an amendment that would cause the plan to lose grandfather status, but the amendment doesn’t become effective until the first day of the next plan year, the plan does not relinquish grandfather status until the date the amendment becomes effective. However, if such an amendment is adopted and effective mid-year, the plan will lose its grandfather status on that date mid-year that the amendment is effective.
FAQ 6: An example of a situation in which a plan will not lose its grandfather status. The plan in question covers both retirees and active employees, and the employer contribution for retirees is based on a formula of a dollar amount multiplied by the individual’s years of service. There is also a cap on the annual dollar amount the employer will contribute. The Departments confirm that if the formula does not change, the employer is not considered to have reduced its contribution rate, even if the total cost of coverage increases and results in the employer’s contribution rate decreasing by more than five percentage points below what it was on March 23, 2010. However, the plan would cease to be a grandfathered health plan if the dollar amount that is multiplied by years of service decreases by more than five percent, or if the maximum annual dollar cap on the employer contribution decreases by more than five percent.