Additonal Guidance on Grandfathered Plans Released

The U.S. government recently released several additional FAQs clarifying grandfathered status regulations for existing health plans that are hoping to avoid compliance with certain reform provisions next year.

The guidance confirms that the six conditions outlined in the interim final regulations released in June are the only conditions that plans must comply with to attain grandfathered status. If all of these conditions are met, existing health plans are exempt from certain provisions of the health care reform laws, such as providing free preventive care services and an external review process for appeals.

Those conditions are as follows:
• Benefits may not be substantially reduced or eliminated from the plan.
• Co-insurance cost-sharing percentages cannot be significantly increased.
• The deductible or out-of-pocket maximum must not increase by an amount exceeding 15 percent more than medical inflation.
• The copayment listed under the plan may not increase by an amount exceeding 15 percent or $5 more than medical inflation (the greater of the two options).
• The employer’s contribution to the plan’s cost cannot decrease by more than 5 percent.
• The insurer cannot impose annual and/or lifetime limits below a certain amount.

The guidance reiterates that grandfathered status will be determined on a singular basis; an employer might have one grandfathered benefits package that is exempt from those specific provisions, and another that is not grandfathered and subject to all provisions.
It also explores the effect that wellness program changes will have on grandfathered status. The guidance states that offering incentives such as premium discounts to wellness program participants will be permitted, but imposing penalties such as cost-sharing surcharges may violate the terms of maintaining grandfathered status.

There has been speculation that the administration may alter the regulations released in June to make it easier for employers to maintain grandfathered status. Currently, the regulations state that employers seeking grandfathered status for their plans cannot enter into a “new policy, certificate, or contract of insurance” after March 23, 2010, suggesting that changing carriers would eliminate the plan from grandfathered status even if benefits remain the same. This regulation may be adjusted in the near future to allow for carrier changes as long as the plan’s benefits remain relatively similar.

To read the FAQs in their entirety, click here.