The Departments of Labor, Treasury, and Health and Human Services have jointly issued interim final rules providing guidance on grandfathered plan status.  Under healthcare reform law, grandfathered plan status is available to group health plans existing as of March 23, 2010 (the date of enactment), and exempts such plans from certain reform provisions.  This important guidance provides clarification for employers as to what plan changes they can make and still maintain grandfathered plan status.

Changes to Grandfathered Plans
Employers who had group health plans in place as of March 23, 2010, are entitled to grandfathered plan status exempting them from some, but not all, of the reform provisions.  In order to maintain grandfathered plan status (and those exemptions), employers are only allowed to make certain plan changes.  Employers can add or delete dependents without affecting grandfathered plan status.  According to the interim final rules, the following changes will cause a plan to lose grandfathered status:

1. Significantly reducing benefits
2. Raising co-insurance charges
3. Significantly raising co-payment charges
4. Significantly raising fixed-amount cost-sharing (ex. 
    deductibles and out-of-pocket limits)
5. Significantly lowering employer contributions
6. Adding or tightening annual limits on what the insurer pays
7. Changing insurance companies or entering into a new
    contract of insurance

The Interim Final Rules also contain anti-abuse rules relating to mergers, acquisitions and plan transfers that do not have a bona fide employment-based reason in order to attempt to maintain grandfathered status.

Click here for a more in-depth discussion of these changes from an employer perspective.

Changes to premiums, changes to comply with federal or state law, changes to voluntarily comply with healthcare reform law provisions, and changing third-party administrators will NOT cause a plan to lose its grandfathered status.

Transition Rules
The interim final rules provide “transitional rules” for plans that made changes after the enactment of the healthcare reform law (March 23, 2010) pursuant to (1) a legally binding contract entered into prior to March 23, 2010; (2) a filing before March 23, 2010, with a State insurance department; or (3) changes made pursuant to written amendments to a plan that were adopted prior to March 23, 2010.  Under the transitional rules, changes in these situations will be considered part of the plan as of March 23, 2010, even though they were not effective then.  In other words, these changes will not be considered when looking at a plan’s grandfathered status.

Good-Faith Effort to Comply Prior to Issuance of Rules
Since several plans may have needed to implement changes prior to the issuance of the interim final rules, the Departments will take into account a plan’s good-faith efforts to comply with a reasonable interpretation of the law prior to the issuance of the interim final rules.  For purposes of enforcement, the Departments may disregard changes to plan terms that only modestly exceed the changes described in the rules and that were adopted prior to the issuance of the rules.

Employer Grace Period
Employers will be provided a grace period within which they can revoke or modify changes adopted prior to the issuance of the interim final rules if the changes made would cause the plan to lose its grandfathered status.  Under the grace period rule, grandfathered status will be preserved if the plan revokes or modifies changes effective as of the first day of the plan year beginning on or after 9/23/10 to bring the terms of the plan within the limits of the interim final rules.

Additional Obligations of Grandfathered Plans
In addition to staying within the guidelines of acceptable changes discussed above, in order to maintain grandfathered plan status, a plan must meet the following requirements:

• Required Disclosure Statement
  In any plan materials provided to participants that describe benefits (such as a summary plan description), a plan must provide a statement to the effect that it believes it is a grandfathered plan within the meaning of Section 1251 of the Affordable Care Act.  This statement must also include contact information for questions and complaints.  The interim rules provide model language that can be used to satisfy this requirement.
  
• Maintenance of Records
  Plans must maintain records documenting the terms of the plan or health insurance coverage that was in effect on March 23, 2010, as well as any other documents necessary to verify or support the plan’s grandfathered status.  Examples of such documents may include plan documents, health insurance contracts, summary plan descriptions, documentation of premiums, and employee contributions.  These records must be made available for inspection and examination by a participant or government official for as long as the plan takes the position that it is a grandfathered plan.

Reform Provisions from which Grandfathered Plans are Exempt
A plan that maintains its grandfathered status is exempt from certain reform provisions including the following:

• Coverage of preventive care with no cost-sharing
• Section 105 nondiscrimination rules for fully-insured plans
• Claims appeals procedures
• Cost-sharing limitations
• Coverage of routine costs of clinical trials

However, grandfathered plans are still subject to the following reform provisions:

• Prohibition on lifetime and annual limits (effective first plan year beginning on or after 9/23/10)
• Prohibition on recession of coverage (effective first plan year beginning on or after 9/23/10)
• Extension of coverage to adult children until age 26 (effective first plan year beginning on or after 9/23/10)
  (Note: for plan years prior to 2014, grandfathered plans are only required to extend coverage if the adult child does not have access to other employer-sponsored coverage.)
• Prohibition on pre-existing condition exclusions (effective first plan year beginning on or after 9/23/10 for children under 19; effective 2014 for all other participants)
• New summary of benefits requirement (effective 2012)
• Prohibition on waiting periods in excess of 90 days (effective 2014)

Additional Information
For further reference, the DOL has posted a Fact Sheet and an FAQ document that provide additional information on grandfathered plan status and the requirements of the interim final rules. 

Also, the DOL has posted a chart of provisions that do and do not apply to grandfathered plans.

As additional guidance and regulations become available for healthcare reform law provisions, HCW will continue to keep you updated through our Compliance Alerts.  In the meantime, if you have any questions about healthcare reform or grandfathered plan status, please email us or contact our office at (919) 403-1986.