FAQ About Grandfathered Plans
By Linda Rowings
Chief Compliance Officer
United Benefit Advisors
As employers determine their plan designs for the coming year, those with grandfathered status need to decide if maintaining grandfathered status is their best option. Following are some frequently asked questions, and answers, about grandfathering a group health plan.
Q1: May plans maintain grandfathered status after 2014?
A1: Yes, they may. There is no specific end date for grandfathered status.
Q2: What are the advantages of grandfathered status?
A2: Grandfathered plans are not required to meet these PPACA requirements:
- Coverage of preventive care without employee cost-sharing, including contraception for women
- Limitations on out-of-pocket maximums (starting in 2014)
- Essential health benefits, metal levels and deductible limits (starting in 2014; these only apply to insured small group plans)
- Modified community rating (starting in 2014; this only applies to insured small group plans)
- Guaranteed issue and renewal (starting in 2014; this only applies to insured plans)
- Nondiscrimination rules for fully insured plans (requirement has been delayed indefinitely)
- Expanded claims and appeal requirements
- Additional patient protections (right to choose a primary care provider designation, OB/GYN access without a referral , and coverage for out-of-network emergency department services)
- Coverage of routine costs associated with clinical trials (starting in 2014)
- Reporting to HHS on quality of care (requirement has been delayed indefinitely)
Q3: What PPACA requirements apply to grandfathered plans?
A3: Most PPACA requirements apply to grandfathered plans. This includes:
- Limits on waiting periods (starting with the 2014 plan year)
- PCORI fee
- Transitional reinsurance fee
- Summary of Benefits and Coverage
- Notice regarding the exchanges
- No rescissions of coverage except for fraud, misrepresentation, or non-payment
- Lifetime dollar limit prohibitions on essential health benefits
- Phase-out of annual dollar limits on essential health benefits, with all limits removed by 2014
- Dependent child coverage to age 26 (an exception for grandfathered plans when other coverage is available expires in 2014)
- Elimination of pre-existing condition limitations (for children currently and all covered persons starting in 2014)
- W-2 reporting of health care coverage costs (this only applies if the employer provided more than 250 W-2s for the prior calendar year)
- Wellness program rules
- Minimum medical loss ratios (this only applies to insured plans)
- Employer shared responsibility (“play or pay”) requirements (starting with 2015)
- Employer reporting to IRS on coverage (starting in 2015)
- Excise (“Cadillac”) tax on high cost plans (starting in 2018)
- Automatic enrollment (this only will apply to employers with more than 200 full-time employees; this requirement has been delayed indefinitely)
Q4: What must a plan do to maintain grandfathered status?
A4: To maintain grandfathered status, a plan must look at its benefits and contribution levels as of March 23, 2010 and must not:
- Eliminate or substantially eliminate benefits for a particular condition
- For example, if a plan covered counseling and prescription drugs to treat certain mental and nervous disorders and eliminates coverage for counseling, the plan will lose grandfathered status.
- Increase cost-sharing percentages
- For example, if the plan had an 80 percent coinsurance rate in March 2010 and decreases the rate to 70 percent, the plan will lose grandfathered status.
- Increase co-pays by more than $5 or a percentage equal to medical inflation (currently 9.5 percent*) plus 15 percent, whichever is greater
- For example, if the plan had an office visit copay of $30 in March 2010, it could increase it to $37.35 without losing grandfathered status.
- Raise fixed amount cost-sharing other than co-pays by more than medical inflation (currently 9.5 percent*) plus 15 percent
- For example, if the plan had a deductible of $1,000 and an out-of-pocket maximum of $2,500 in March 2010, it could increase the deductible to $1,200 and the out-of-pocket limit to $3,100 without losing grandfathered status.
- Lower the employer contribution rate by more than 5 percent for any group of covered persons
- For example, if the employer contributed 80 percent of the cost of employee-only coverage and 60 percent of the cost of family coverage in March 2010, if the employer keeps its contribution percentage for employee-only coverage at 80 percent but reduces its contribution for family coverage to 50 percent, the plan will lose grandfathered status.
- Add or reduce an annual limit
- For example, a plan that previously had no limit on MRIs could not impose a $10,000 per year maximum on MRIs without losing grandfathered status.
The plan also must:
- Maintain records of its plan design and contribution levels as of March 23, 2010 and any changes since that date
- Include a notice about the plan’s grandfathered status in significant participant communications, such as enrollment materials and summary plan descriptions. (The notice does not need to be included with the SBC or EOBs.) A model notice available at: www.dol.gov/ebsa/grandfatherregmodelnotice.doc
Q5: How are changes measured?
A5: Changes are measured cumulatively since March 2010. So, for example, if an employer contributed 70 percent of the cost in March 2010, and reduced its share to 68 percent in January 2012, it could again reduce its share, to 65 percent, in January 2015 without losing grandfathered status.
Or, if the deductible was $500 in March 2010 and it was increased to $550 in July 2011, it could be increased to $600 in July 2014 without losing grandfathered status.
Q6: Will violating just one of the requirements forfeit grandfathered status?
Q7: What changes may a plan make and keep grandfathered status?
A7: A plan will not lose grandfathered status if it:
- Changes insurers (on or after Nov. 15, 2010) or third party administrators, as long as benefits do not change
- Moves between self-funded and insured status, as long as benefits don’t change
- Makes changes required by law
- Increases benefits
- Makes any change other than a prohibited change (for example, a change to eligibility rules)
- Moves drugs to a different copay tier because the drugs have become generic
- Changes networks
- Passes along premium increases (as long as the increase is essentially shared pro rata)
- Adds new employees or family members to the plan
Q8: If an employer offers several plan options, can it keep grandfathered status for some plans even if it has lost it for others?
A8: Yes, it can. So, for instance, an employer could have a grandfathered PPO option and a non-grandfathered HMO option.
Q9: Can an employer add tiers without losing grandfathered status?
A9: Yes it can, as long as it maintains its contribution level for all tiers at the required level. For example, if the employer offered a 2-tier plan and paid 90 percent of the cost of employee-only coverage and 75 percent of the cost of family coverage in March 2010, it could move to 4 tiers in March 2014 without losing grandfathered status as long as it paid at least 85 percent of the cost of employee-only coverage and at least 70 percent of the cost of employee plus spouse, employee plus children and family coverage.
Q10: Can an employer add a wellness program without losing grandfathered status?
A10: An employer can add a wellness program without losing grandfathered status, but needs to take care to make sure it maintains contributions and benefits at the needed levels. (Wellness plans do not have special rules that would give them extra latitude.)
Q11: If an employer loses grandfathered status, can it get it back?
A11: With the exception of a transition period in 2010, a plan that loses grandfathered status, even inadvertently, cannot get it back. This seems to include losing status because the required notice was not provided.
Q12: What happens if a plan loses grandfathered status?
A12: The plan must comply with all of the requirements that apply to non-grandfathered plans as of the effective date of the change that caused the loss of status. So, for example, if the plan is amended to increase the coinsurance level effective Jan. 1, 2014 but the amendment isn’t signed until Feb. 6, 2014, grandfathered status is lost as of Jan. 1, 2014.
Q13: Are there special rules for bargained plans?
A13: A fully-insured plan maintained under one or more collective bargaining agreements ratified before March 23, 2010 may remain a grandfathered plan at least until the date on which the last agreement relating to the coverage that was in effect on March 23, 2010 terminates. (Self-insured plans maintained under a collective bargaining agreement are not eligible for this collectively bargained exception.) After the date on which the last of the collective bargaining agreements terminates, the usual rules for maintaining grandfather status apply - the current terms of the plan are compared to the terms that were in effect on March 23, 2010.
Q14: Should a plan keep grandfathered status for 2014?
A14: Whether to keep grandfathered status for 2014 is the plan sponsor's decision. Typically, the employers most interested in maintaining grandfathered status are those who:
- Want to retain an out-of-pocket limit above $6,350/12,700
- Have religious objections to covering contraception
- Have carve-out plans for executives
- Are in the small group market and wish to avoid the insurance market changes (essential health benefits, cost-sharing limits, metal levels and modified community rating)
* Medical inflation is measured by the increase since March 2010 in the overall medical care component of the Consumer Price Index for All Urban Consumers (CPI-U).