This article was also published in our Employee Benefits' Benefits Alert on June 18, 2010.
The wait is over! Guidance has finally been issued on what changes can be made to a group health plan without causing it to lose its grandfathered status.
Overview
The Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act (collectively the "PPACA"), includes various group health plan eligibility and coverage mandates, many of which are effective as soon as the first day of the first plan year beginning on or after September 23, 2010. However, in an effort to allow individuals to keep existing health plan coverage, Congress exempted plans in existence on March 23, 2010, called "grandfathered plans," from some of the PPACA's mandates. Until now, it has not been clear what types of plan design changes made to a grandfathered plan will cause the plan to lose its grandfathered plan status. On June 14, 2010, the Departments of Health and Human Services, Labor, and Treasury issued an Interim Final Rule which provides some answers. Although the Rule was effective on June 14, 2010, it is open for public comment and is subject to future revision.
Under the Interim Final Rule, as long as changes made to an existing group health plan stay within certain parameters, the plan will maintain its grandfathered plan status, and will not be required to comply with many of the PPACA's mandates for group health plans and health coverage. Some PPACA provisions from which grandfathered plans are exempt include the requirement to provide recommended preventive care services to participants on a first-dollar basis, and the requirement to apply certain "patient protections" to plan participants, including provider choice and emergency room access provisions. Grandfathered plans are also exempt from the application of federal tax code nondiscrimination rules, which currently apply only to self-funded group health plans, to fully-insured group health plans. In addition, although all plans are required to extend eligibility coverage to adult children until the child's 26th birthday, grandfathered plans are permitted to exclude adult children who are eligible for other employer-sponsored coverage until January 1, 2014. A health plan that loses grandfathered plan status will become subject to these and other PPACA mandates. See http://www.dol.gov/ebsa/pdf/grandfatherregtable.pdf for the Department of Labor's chart showing the PPACA provisions that do not apply to grandfathered plans.
What Changes Cause Loss of Grandfathered Plan Status?
The Interim Final Rule outlines specific plan design changes which will result in a loss of grandfathered plan status. All changes are measured against the plan terms in effect on March 23, 2010. These include:
Eliminating all, or substantially all, benefits related to diagnosis or treatment of a particular condition;
Increasing plan participants' coinsurance percentage;
Decreasing an employer's premium contribution rate for any class of similarly-situated participants by more than 5 percentage points;
Adding a new annual limit on a type of benefit (unless the annual limit replaces a lifetime limit and is at least as high as the lifetime limit it replaces), or decreasing an existing annual limit;
Increasing fixed-dollar copayments by more than $5 (adjusted annually for medical inflation) or by more than a percentage equal to medical inflation plus 15 percentage points;
Increasing plan deductibles by more than a percentage equal to medical inflation plus 15 percentage points;
For an insured health plan arrangement, entering into a new policy, certificate, or contract of insurance that is not a renewal of an existing policy, regardless of the terms of the new policy, certificate, or contract. However, a change in a self-funded plan's third-party administrator alone will not cause a loss of grandfathered status.
It is important to note that these conditions apply separately to each benefit option offered by an employer, even if different options are offered under a single group health plan. Modifications to one benefit option could cause that option to lose grandfathered plan status, while the benefit options that remain unchanged or are modified within the permitted limitations, remain eligible for grandfathered plan status. If an employer eliminates one benefit option offered under a group health plan, so that participants must move to another benefit option (e.g., forcing participants to move from a PPO option to a high-deductible option), the remaining plan will lose grandfathered status if the coverage change either reduces benefits or increases cost-sharing for those participants in a amount above what is permitted to maintain grandfathered plan status.
What are the requirements for collectively-bargained plans?
The Interim Final Rule clarifies that there is no delayed effective date for group health plans maintained pursuant to one or more collective bargaining agreements ("multiemployer plans"). Grandfathered multiemployer plans are permitted to maintain grandfathered status indefinitely, as long as they continue to meet the same requirements applicable to other grandfathered health plans. However, a special rule applicable only to fully-insured multiemployer plans allows a change in insurance issuers during the period after March 23, 2010 and prior to expiration of all collective bargaining agreements relating to that plan without loss of grandfathered status. Such plans are permitted to maintain grandfathered status as long as they continue to meet all other requirements to do so.
What are the Disclosure and Recordkeeping Requirements for Grandfathered Plans?
To keep grandfathered plan status, group health plans must meet specified disclosure and recordkeeping requirements. Specifically, all group health plan materials (including the SPD, insurance certificate, and any other materials describing plan benefits) distributed to participants must contain a statement telling participants that the plan is a grandfathered plan, and that as a result, certain "consumer protections" under the PPACA do not apply. Plan materials must also provide participants with a contact person for questions or complaints. Click here for the model notice.
In addition, the plan sponsor must maintain records documenting the terms of the plan in effect on March 23, 2010, as well as "any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan." These documents provide the basis against which any future plan changes will be measured. The Interim Final Rule does not specify what forms of documentation are acceptable, so it is important for employers to keep and have readily available all plan documentation, including the ERISA plan document, SPD, insurance certificates, and benefit summaries, as well as all enrollment materials, insurance or administrator contracts and any other records that memorialize the plan benefits, costs and any relevant details of the arrangement as of March 23, 2010. We are available to assist in reviewing documents and putting together a record to evidence the terms and costs of a grandfathered plan as of March 23, 2010. These records should be retained indefinitely.
What About Plan Changes Already in the Works?
Special transitional rules are available for changes made to group health plans after the effective date of the PPACA. Specifically, changes effective prior to March 23, 2010, or changes effective after that date but adopted on or before March 23, 2010, will be considered part of the grandfathered plan. Moreover, changes made after March 23, 2010 and adopted prior to June 14, 2010 will not cause a plan to lose grandfathered plan status, but only if those changes are revoked or modified to come within the permitted modifications prior to the first day of the next plan year.
What Should Plan Sponsors Do Now?
Perhaps most importantly, plan sponsors will need to analyze the benefits of maintaining grandfathered plan status in light of the specific regulatory requirements, and answer the question of whether the benefits of grandfathered plan status outweigh the compliance costs. If the answer to that question is "yes," then the plan sponsor should immediately review any plan changes implemented after March 23, 2010, or that are under consideration for the next plan renewal, to determine whether those changes would cause a loss of grandfathered plan status, and, if so, if any action is necessary to take advantage of the transitional rules. Plan sponsors should also compile all plan-related documentation necessary to demonstrate that grandfathered plan status requirements are met and what plan provisions and costs have been grandfathered. They should also revise all written plan materials to include the required grandfathered plan disclosures.
If you would like additional information, please contact:
Katy Stowers 317-238-6257; cstowers@kdlegal.com
Kristen Gentry at 317-238-6288; kgentry@kdlegal.com
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