A grandfathered group health plan (GGHP) is one that had any participants on the date of enactment, March 23. On June 14, the Departments of the Treasury, Labor and Health and Human Services jointly issued interim guidance on how a GGHP loses or maintains that status.
In order to maintain grandfathered status, a GGHP must include a statement in plan materials describing the benefits provided and that the plan is believed to be a grandfathered health plan, and provide plan contact information for questions and complaints. Model language is provided in the joint interim guidance.
The loss of grandfathered status is triggered by certain plan changes such as:
>A reduction in benefits. (Elimination of all or substantially all benefits to diagnose or treat a particular condition.)
>Any increase in a percentage cost-sharing requirement.
>Increases in fixed-amount cost-sharing requirements other than copayments. (Any increase after March 23 in an amount greater than medical inflation plus 15 percent.)
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>Increases in fixed-amount copayments. (Any increase after March 23 exceeding the greater of 1) medical inflation plus 15 percent, or 2) $5 increased by medical inflation.)
>A decrease in employer contribution rate of more than 5 percent.
>Changes in annual limits. (Certain adverse amendments to annual limits.)
Certain changes to a GGHP will not result in loss of that status. These include amendments to comply with federal or state law mandates (such as mental health parity) and amendments to voluntarily comply with provisions of the act that are not mandatory for grandfathered plans.
The departments have solicited comments on whether several other changes should result in loss of grandfathered status including changes to plan structure such as switching from insured to self-insured, changes in provider networks, changes to a prescription drug formulary, and any other substantial change to benefit design. Any future guidance that is more restrictive than the interim rules will apply only on a prospective basis.
The three departments issuing the interim guidance acknowledge that plan sponsors must weigh the costs and benefits of retaining or relinquishing grandfathered status.
Among the benefits, GGHPs are exempt from many of the requirements of the health care reform act, including new rules for claims and appeals, the requirement to provide preventative care without cost sharing and the application of nondiscrimination rules to insured plans. Certain other requirements apply to grandfathered plans, but on a modified or delayed basis.
Grandfathered plans are subject to many of the requirements of the act, including restrictions on pre-existing condition limitations, rescissions of coverage and coverage limits and the requirement that plans cover dependent children up to age 26. (The latter requirement applies to GGHPs prior to 2014 only to the extent the adult child is not eligible for another employer plan.) Maintaining grandfathered status necessarily restricts the extent to which employers may shift costs to employees and also limits the employer’s ability to shop for more affordable coverage.
Intangible factors such as employee morale also enter into benefit decisions. The key is to make an informed decision rather than inadvertently losing grandfathered status due to a lack of information.
Alice Eastman Helle is an attorney with BrownWinick, a Des Moines, Iowa-based law firm, who practices primarily in the areas of pensions and employee benefits. Reach her at (515) 242-2407 or helle@brownwinick.com.