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. Following are some frequently asked questions, and answers, about grandfathering a group health plan.
Q1: May plans maintain grandfathered status after 2014?
A1: Yes, they may. There is no specific end date for grandfathered status.
Q2: What are the advantages of grandfathered status?
A2: 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)
Q3: What PPACA requirements apply to grandfathered plans?
A3: 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)
Q4: What must a plan do to maintain grandfathered status?
A4: 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 is here: http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc
Coming up: How are changes measured? What changes can employers make to their plan without losing grandfathered status? Should an employer keep a grandfathered plan in 2014?
