Health Reform – Regulations Limit Ability to Rely on Grandfathered Status
As we have reported in earlier Advisories (please see our Client Advisories from April 9, 2010, April 26, 2010, May 10, 2010, and June 11, 2010), the health care reform laws require significant changes to group health plans effective for plan years beginning on and after September 23, 2010 (January 1, 2011 for calendar plan years). Whether a plan is required to comply with all of the requirements depends upon whether the plan is considered a "grandfathered" plan. The Departments of Treasury, Labor, and Health and Human Services recently issued final interim regulations regarding this important distinction, and their limited application of grandfathered status may surprise many.
Definition of Grandfathered Plan
Grandfathered plans, generally, are plans that were providing coverage to at least one person since March 23, 2010 (collectively bargained plans have a special rule that is described below). Grandfathered plans are exempt from some, but not all, of the new requirements of the health care reform laws. For example, grandfathered plans are exempt from the full extent of the rules requiring extended coverage for adult children up to age 26 until 2014. In other cases, as long as the plan can maintain grandfathered status, the plan will be exempt from requirements such as the rule prohibiting discrimination in insured group health plans. In order to avoid the full impact of the health care reform laws, an employer with a grandfathered plan will need to keep the plan within the confines of the new regulations and comply with certain notice requirements.
Changes that Will Not Cause a Plan to Lose Its Grandfathered Status
The regulations state that the following types of changes taken alone will not disturb a plan's grandfathered status:
Changes that Will Cause a Plan to Lose Its Grandfathered Status
The following changes will cause a plan to lose its grandfathered status:
Changes that May or May Not Cause a Plan to Lose Its Grandfathered Status
The following types of changes may or may not cause a plan to lose its grandfathered status. The Departments have requested comments on whether the following changes will cause a plan to lose its grandfathered status and be subject to the new rules:
Grandfathered status will apply separately to each benefit package or option offered under a policy or plan.
Collectively Bargained Health Plans - Special Rules
The regulations also take a strict view of the special grandfathered rule for collectively bargained plans. The special rule treats such a plan as grandfathered until the date on which the last of the collective bargaining agreements relating to the coverage that was in effect on March 23, 2010, terminates. First, the regulations limit this special grandfathered rule to fully insured, and not self-insured, plans. Second, the regulations clarify that grandfathered, collectively bargained plans must comply with all of the requirements of other grandfathered plans (for example, those plans must extend coverage to adult children up until age 26 unless the adult child is covered under other employer-provided group health coverage in the same manner as other grandfathered plans).
Employers that made changes after March 23, 2010, and before these regulations were issued can take advantage of transition relief. If a plan made changes after March 23, 2010, due to a legally binding contract entered into before that date, the changes will be considered part of the terms of the plan on March 23, 2010. If a plan made changes after March 23, 2010, but before the regulations were issued, changes can be revoked or modified effective the first day of the first plan year on or after September 23, 2010, and the terms on that date, as modified, will not cause the plan to lose its grandfathered status. In addition, the preamble to the regulations provides that if the plan makes changes that only "modestly exceed" some of the rules in the regulations, the changes will be disregarded for enforcement purposes.
Notice Requirements for All Grandfathered Plans
In addition to the plan design requirements, in order to maintain status as a grandfathered plan, the plan must 1) include a statement in any plan materials describing the benefits provided under the plan and provided to a participant or beneficiary that the plan believes it is a grandfathered plan and 2) must provide contact information for questions and complaints. The regulations provide model language for this notice. In addition, for as long as a plan asserts grandfathered status, the plan must maintain documents showing the coverage in effect on March 23, 2010, and any other documents necessary to prove its status.
Our Employee Benefits Team is available to answer any questions you may have regarding the new health reform laws, or any other employee benefit matter.
If you have any questions about this Client Advisory, please contact any member of our Employee Benefits Team.
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©2010 Sherman & Howard July 1, 2010