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CCH® BENEFITS — 06/21/10

Variety Of Plan Changes Will End Grandfathered Status Under Health Reform, According To Interim Final Rules

from Spencer’s Benefits Reports: At least six types of changes will cause a plan to lose grandfathered status under the Patient Protection and Affordable Care Act, according to interim final rules scheduled to be published in the June 17 Federal Register.

The rules, issued jointly by the Internal Revenue Service, the Department of Labor’s Employee Benefits Security Administration (EBSA), and the new Office of Consumer Information and Insurance Oversight, will affect many of the 186 million employees in both large and small employer based plans, according to the Department of Health and Human Services (HHS). The HHS estimates that between 71% and 87% of large employer plans will be grandfathered in 2011, and between 36% and 66% of small employers plans will have grandfathered status in 2011. Those percentages are expected to drop significantly over the next two years (see http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html).

The Affordable Care Act established two different types of health care plans:

• new plans (those established after March 23, 2010), and

• grandfathered plans, which are any group health plans that were in effect on March 23. Individuals who are enrolled in these plans may not be forced to terminate that coverage.

An employer can end a grandfathered plan, but if the employer maintains such a plan, it cannot force employees from the coverage.

While new plans are subject to all of the health reform rules, grandfathered plans are not; for example, grandfathered plans do not have to comply with the requirement to provide preventive care services, and insured grandfathered plans do not have to comply with the Affordable Care Act’s nondiscrimination rules.

Two of the major concerns with grandfathered plans are informing employees of the status of their plans and determining what plan changes will cause a plan to lose its grandfathered status. The interim final rules addresses both of these issues.

Model Disclosure Language

The interim final rules specify that in order for a plan to maintain grandfathered status it must include a statement in any plan materials describing the benefits provided that the plan believes makes it a grandfathered health plan. The plan also must provide contact information for questions and complaints.

The following model language can be used to satisfy this disclosure requirement:

“This [group health plan or health insurance issuer] believes this [plan or coverage] is a ‘grandfathered health plan’ under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.

“Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information].

“[For ERISA plans, insert: You also may contact the Employee Benefits Security Administration, U.S. Department of Labor at (866) 444-3272 or http://www.dol.gov/ebsa/healthreform. This Web site has a table summarizing which protections do and do not apply to grandfathered health plans.]

“[For individual market policies and nonfederal governmental plans, insert: You also may contact the U.S. Department of Health and Human Services at http://www.healthreform.gov.]”

Prohibited Changes

The regulations list and describe the following plan changes that will result in the “cessation of grandfather status:”

1. The elimination of all or substantially all benefits to diagnose or treat a particular condition.

2. Any increase, measured from March 23, 2010, in a percentage cost-sharing requirement (such as an individual’s coinsurance requirement).

3. Any increase in a fixed-amount cost-sharing requirement other than a copayment (for example, deductible or out-of-pocket limit), determined as of the effective date of the increase, that exceeds the maximum percentage increase, which is medical inflation plus 15%.

4. Any increase in a fixed-amount copayment that exceeds the greater of:

(a) $5 (increased by medical inflation), or

(b) medical inflation plus 15%.

5. Decrease in employer contribution rate:

(a) Based on cost of coverage. A group health plan ceases to be a grandfathered health plan if the employer decreases its contribution rate based on cost of coverage (the amount of contributions made by an employer compared to the total cost of coverage, expressed as a percentage) by more than 5%.

(b) Based on a formula. A group health plan ceases to be a grandfathered health plan if the employer decreases its contribution rate based on a formula (such as hours worked or tons of coal mined) by more than 5%.

6. Changes in annual limits:

(a) Addition of an annual limit. A group health plan ceases to be a grandfathered health plan if it imposes a new overall annual limit on the dollar value of benefits.

(b) Decrease in limit for a plan with only a lifetime limit. A group health plan that imposed an overall lifetime limit on benefits, but no overall annual limit ceases to be a grandfathered health plan if it adopts an overall annual limit at a dollar value that is lower than the lifetime limit.

(c) Decrease in limit for a plan with an annual limit. A group health plan that imposed an overall annual limit on all benefits ceases to be a grandfathered health plan if it decreases the annual limit.

Applicable Dates

In general, the regulations apply to plan years beginning on or after Sept. 23, 2010.

Comments on the interim rules, which must be received within 60 days after publication, may be submitted through the federal eRulemaking Portal at http://www.regulations.gov.

Comments to EBSA should be identified by RIN 1210- AB42; comments to HHS should refer to file code OCIIO-9991-IFC; and comments to the IRS should be identified by REG-118412-10.

For more information, contact the following:

• Amy Turner or Beth Baum, EBSA, (202) 693-8335;

• Karen Levin, IRS, (202) 622-6080;

• Jim Mayhew, OCIIO, (410) 786-1565.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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