The Basics of Grandfathered Health Plans Under the PPACA

November 05, 2010, 02:34 PM

A grandfathered heath plan is any existing group health plan, including self-insured plans, or health insurance coverage in which a person was enrolled on or before March 23, 2010. A grandfathered plan must continue to cover someone (even if not the same individual) from March 23, 2010 forward to maintain its grandfathered status. New employees and family members are able to be added to coverage under the plan without affecting the grandfathered status. Generally, a grandfathered plan will be exempt from certain provisions of the PPACA, including requirements related to preventive care, internal and external review, nondiscrimination based on income, choice of providers, emergency care, clinical trials, cost sharing and deductibles, guaranteed issue/renewal, and rating restrictions. Grandfathered plans are not exempt from requirements related to annual and lifetime limits, dependent coverage to age 26, rescission, pre-existing condition exclusions, waiting periods, employer mandates, and tax provisions. Keep in mind that it is possible for a grandfathered plan to lose its status. The IRS, HHS and the Department of Labor issued interim final rules summarizing changes that cause cessation of grandfathered status which were published in the Federal Register on June 17, 2010. Some of these changes include the following:

  1. All or substantially all benefits to diagnose or treat a particular condition are eliminated;
  2. Percentage cost-sharing requirements (e.g., coinsurance) are increased by any amount after March 23, 2010;
  3. Fixed-amount cost-sharing requirements other than copayments (e.g., deductibles/out-of-pocket limits) exceed “maximum percentage increases” as defined in the regulations;
  4. Fixed amount copayments are increased at a rate exceeding the “maximum percentage increase” or ($5 x “medical inflation”) + $5; or
  5. The employer decreases its contribution rate towards the cost of any tier of coverage by more than 5 percent

All insurers and plan sponsors must be aware of how a change could impact grandfathered status under the new rules. –Katie G. Davenport