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Benefits Law
Alert
Agencies Issue Interim Final Grandfathered Status
Rules under Health Care Reform Legislation
On June 14,
2010, the Departments of Health and Human Services, Treasury, and
Labor issued interim final grandfathered status rules for health
plans under the recently enacted Patient Protection and Affordable
Care Act (the "Affordable Care Act").
Under the
Affordable Care Act, grandfathered health plans enjoy special status
and are exempt from a number of its requirements. A grandfathered
health plan is a plan that provided coverage to participants on March
23, 2010, the date the Affordable Care Act was signed into law.
Plan Changes
That Will Not Affect Grandfathered Status
The interim
final rules clarify that certain plan changes will not affect a
plan's grandfathered status, including:
· Adding
new employees and their families to the plan;
· Adding existing employees who previously declined coverage to
the plan;
· Allowing employees to add family members to the plan;
· Renewing an insurance policy;
· Complying with federal or state legal requirements;
· Voluntarily complying with the Affordable Care Act;
· Adding new benefits;
· Changing third-party administrators; and
· Increasing premiums (subject to the cost-sharing limitations
outlined below).
Plan Changes
That Will End Grandfathered Status
Plans that
reduce benefits or increase costs will lose their grandfathered
status unless the level of change is permitted under the
regulations. According to the interim final rules, changes that
will end grandfathered status include:
· Significantly
cutting or reducing benefits to diagnose or treat a particular
condition;
· Raising the level of co-insurance (e.g., going from an 80/20
plan to a 70/30 plan);
· Raising co-payment charges by more than (1) the rate of
medical inflation plus 15 percent, or (2) $5, as adjusted for medical
inflation, whichever is greater;
· Raising deductibles and out of pocket limits in excess of the
rate of medical inflation since March 23, 2010, plus 15 percent;
· Lowering employer contributions by more than 5 percent;
· Reducing or adding new annual limits;
· Changing insurance policies, certificates or contracts;
· Forcing employees to switch to another grandfathered plan that
provides less benefits or higher costs as a means of avoiding the
Affordable Care Act's protections; and
· Merging with another plan for the purpose of avoiding
compliance with the Affordable Care Act.
Importantly,
the determination of grandfathered status is made separately with
respect to each benefit option available under a group health
plan. So, for example, if a plan has three benefit options and
makes an impermissible change to one of the options, only that option
will lose its grandfathered status as a result of the change. The
other two benefit options will remain grandfathered.
The interim
final rules provide that a plan's good faith efforts to comply with
the grandfathered rules prior to June 14, 2010 will be taken into
account by regulators for enforcement purposes if the changes only
modestly exceed the permitted changes described above. In
addition, the interim final rules provide a grace period during which
plans may revoke or modify any changes adopted prior to June 14, 2010
that might otherwise cause the plan to lose grandfathered
status. The grace period ends on the date the changes would
otherwise become effective.
Effect of
Losing Grandfathered Status
If a plan
loses grandfathered status, it will have to comply with all of the
provisions of the Affordable Care Act applicable to non-grandfathered
plans, such as:
· No
cost-sharing requirements for preventative care;
· External review procedures for benefit claim appeals;
· Non-discrimination testing; and
· Emergency services without preauthorization.
Disclosure
Requirements
The interim
final rules also provide that in order to maintain grandfathered
status, plans must comply with certain disclosure and documentation
requirements. Specifically, plans must maintain records
documenting the plan or policy terms that were in effect on March 23,
2010, and any other documents necessary to verify, explain, or
clarify the plan's status as grandfathered. These records must
be made available to participants, beneficiaries, individual
policyholders, or state or federal agencies upon request. The
records must be kept for as long as the plan takes the position that
the coverage remains grandfathered.
A
grandfathered plan must also provide notice to plan participants or
beneficiaries every time it distributes materials stating that the
plan believes it is a grandfathered health plan and is not subject to
certain provisions of the Affordable Care Act. A model
statement satisfying this disclosure requirement is included in the
interim final rules.
Collectively
Bargained Plans
The interim
final rules clarify that all collectively bargained plans must comply
with the same requirements as other grandfathered plans and with the
same effective dates. However, the regulations provide that a
fully-insured collectively bargained health plan will not lose its
grandfathered status during the period of the collective bargaining
agreement, even if there is a change that otherwise would cause a
plan to lose its grandfathered status under the regulations (e.g., a
change in insurance policies, an increase in cost sharing, etc.)
Retiree-Only
Plans
Finally, the
preamble to the interim final rules states that retiree-only plans
(plans with less than two participants who are current employees) and
HIPAA excepted benefits (such as stand-alone vision or dental
coverage) are not subject to the Affordable Care Act reform
provisions and are not treated as grandfathered plans.
The full text
of the interim final rule is available at: http://www.federalregister.gov/OFRUpload/OFRData/2010_Pl.pdf.
The
agencies are accepting public comments on the interim final
grandfathered status rules until August 16, 2010.
Comments may be submitted online at: www.regulations.gov.
If
you have any questions please contact: Edward C. Hammond at
(248) 988-1821 - ehammond@clarkhill.com, John P.
Schneider at (616) 608-1108 - jschneider@clarkhill.com,
Kristi R. Gauthier at (248) 988-5854 - kgauthier@clarkhill.com, or Ellen Hoeppner at (313) 965-8262 - ehoeppner@clarkhill.com.
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