One of the “loopholes” available to employers in complying with the Patient Protection and Affordable Care Act is the grandfather clause.
If your employee health plan is currently a grandfathered plan, you may want to consider relinquishing that status. Or, if you are among those employers that, for a specific reason, wants to maintain grandfather status, then you need to pay close attention to the rules permitting a plan to be grandfathered in.
Plans can retain grandfathered status if they change plan funding from self-insured to fully insured, or change insurance companies as long as they offer the same coverage. There’s no cutoff date for grandfathered plans. They can remain in place as long as the meet the above criteria.
But there are specific criteria a plan must meet to retain grandfathered status. And, there are benefits to converting to a fully PPACA-complaint coverage design, says United Benefit Advisors in a recent FAQ, “What Employers Need to Know Right Now about Health Care Reform.”
“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,” UBA says.
Here are some FAQs from its research:
What are the advantages of grandfathered status?
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)
What PPACA requirements apply to grandfathered plans?
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)
What must a plan do to maintain grandfathered status?
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
Should a plan keep grandfathered status for 2014?
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)
Can an employer add a wellness program without losing grandfathered status?
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.)
Can an employer add tiers without losing grandfathered status?
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.
Are there special rules for bargained plans?
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.