Newsletter

Government Agencies Issue Clarifications On Maintaining Grandfather Status Under the Affordable Care Act

The Departments of Health and Human Services, Labor, and Treasury have issued interim final rules on grandfathered plans- health coverage in place on March 23, 2010. The regulation makes clarifications on what changes can occur to health plans without them losing their "grandfather" status. Grandfathered plans are exempt from certain requirements of the Affordable Care Act, such as coverage of recommended prevention services with no cost sharing, and guaranteed access to OB-GYNs and pediatricians.

The regulation allows employers and insurers to make "routine" changes to plans without them losing grandfather status. Routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with state or other federal laws. According to HealthReform.gov, plans will lose their "grandfather" status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers. However, premium changes are not taken into account when determining whether or not a plan is grandfathered.

Compared to their polices in effect on March 23, 2010, grandfathered plans:

  • Cannot Significantly Cut or Reduce Benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
  • Cannot Raise Co-Insurance Charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill). Grandfathered plans cannot increase this percentage.
  • Cannot Significantly Raise Co-Payment Charges. Frequently, plans require patients to pay a fixed-dollar amount for doctor's office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. For example, if a plan raises its copayment from $30 to $50 over the next 2 years, it will lose its grandfathered status.
  • Cannot Significantly Raise Deductibles. Many plans require patients to pay the first bills they receive each year (for example, the first $500, $1,000, or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.
  • Cannot Significantly Lower Employer Contributions. Many employers pay a portion of their employees' premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers' share of premium from 15% to 25%).
  • Cannot Add or Tighten an Annual Limit on What the Insurer Pays. Some insurers cap the amount that they will pay for covered services each year. If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010. Moreover, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high-cost enrollees).
  • Cannot Change Insurance Companies. If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan. This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.

Disclosure and Recordkeeping Requirement

The regulation on grandfathered plans requires a plan to disclose to consumers every time it distributes materials whether the plan believes that it is a grandfathered plan and therefore is not subject to some of the additional consumer protections of the Affordable Care Act. This allows consumers to understand the benefits of staying in a grandfathered plan or switching to a new plan. The plan must also provide contact information for enrollees to have their questions and complaints addressed. Click here for Model language that can be used to satisfy this disclosure requirement. The Model language is also available in the interim final rules.

Under the interim final rules, to maintain status as a grandfathered health plan, a plan or issuer must also maintain records documenting the terms of the plan or health insurance coverage that were in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan.

Ways Grandfather Status Can Be Revoked

To prevent health plans from using the grandfather rule to avoid providing consumer protections, the regulation:

  • Revokes a plan's grandfathered status if it forces consumers to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing as a means of avoiding new consumer protections
  • Revokes a plan's grandfathered status if it is bought by or merges with another plan simply to avoid complying with the law.

To view a new table from the Department of Labor on how certain requirements of health care reform relate to Grandfathered Plans, please click here.