On November 15, 2010, the Department of Health & Human Services published an amendment to the interim final regulations on grandfathered health plans that provides prospective relief if a plan sponsor changes insurance carriers with respect to an insured plan. Provided the new policy does not include any changes described in the interim final regulations that would otherwise cause the benefit package to lose grandfathered status, the new policy will maintain its status as a grandfathered health plan. As a condition of relying on this rule, a group health plan that enters into a new policy must provide the new health insurance issuer (and the new health insurance issuer must require) documentation reflecting the plan’s terms (including benefits, cost sharing, employer contributions, and annual limits) under the prior health coverage sufficient to determine whether any change that would otherwise result in revocation of grandfathered status under the interim final regulations. This documentation may include a copy of the policy or summary plan description.
For this purpose, the date the new coverage becomes effective is the operative date, not the date a contract for a new policy, certificate or contract of insurance is entered into. Therefore, if a plan sponsor entered into a new policy on August 1, 2010, effective January 1, 2011, the amendment to the interim final regulations would apply, provided the terms of the new policy did not contain any changes that would otherwise result in revocation of grandfathered status.
As a reminder, the following changes in design or cost result in loss of grandfathered status:
- Eliminating all or substantially all the benefits to diagnose or treat a particular condition
- Increasing the percentage cost-sharing arrangement above the March 23, 2010 level (e.g., increasing the coinsurance for inpatient surgery from 20% to 25%)
- Increasing the fixed-dollar cost sharing (other than copayments), such as a $500 deductible or a $2,500 out-of pocket limit, by a total percentage measured from March 23, 2010, that is greater than the sum of medical inflation plus 15%
- Increasing co-payments by an amount that exceeds the greater of a total percentage measured from March 23, 2010, that is more than the sum of medical inflation plus 15%, or $5 increased by medical inflation measured from March 23, 2010
- Decreasing the employer contribution rate by more than 5% below the contribution rate on March 23, 2010
- Changing annual limits on the dollar value of benefits in the following manner:
1. If the plan did not impose an overall annual or lifetime limit, it cannot now add an annual limit;
2. If the plan imposed an overall lifetime limit, but no annual limit on the dollar value of benefits, it cannot
now add an overall annual limit at a dollar value that is lower than the March 23, 2010 lifetime limit; and
3. If the plan imposed an overall annual limit, it cannot decrease the dollar value of annual limit.
If you have any questions about whether a change in insurance carrier will result in loss of grandfathered health plan status under the Patient Protection and Affordable Care Act, please feel free to contact a member of the Employee Benefits group.