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Maintaining Grandfathered Status
Employers and those administering group health plans are allowed to make certain “routine” changes without losing grandfathered status. This includes changes such as adding new benefits, cost adjustments to keep pace with medical inflation, making modest adjustments to existing benefits, or any changes needed to comply with state or other federal laws. Note that changes in premiums are not taken into account when determining whether or not a plan is grandfathered.
Plans may lose “grandfathered” status if they make significant changes that reduce benefits or increase costs to those enrolled in the plan. In order to maintain grandfathered status, group health plans:
- Cannot Drastically Cut or Reduce Benefits. For example, a plan wishing to remain in grandfathered status cannot decide to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
- Cannot Increase Co-Insurance Charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a bill from a hospital). Grandfathered plans are not allowed to increase this percentage.
- Cannot Significantly Raise Co-Payment Charges. Frequently, plans require patients to pay a fixed-dollar amount called a co-pay for doctor’s office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than either of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points, whichever is greater. For example, if a plan raises its copayment from $30 to $50 over the next 2 years, it will lose its grandfathered status.
- Cannot Significantly Raise Deductibles. Many plans require patients to pay the first sets of bills they receive each year up to a certain amount. This is known as a deductible. Grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points, compared with the deductible required as of March 23, 2010,
- Cannot Significantly Lower Employer Contributions. Many employers pay a given portion of their employees’ insurance premiums. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points. For example, if the employer is paying 25% of the premium, they cannot shift down to 15% and pass those costs on to the employee.
- Note: Final rules provide relief to issuers, plan sponsors, employers, and plans that take certain steps to communicate changes in contribution rates. Specifically, the rules provide that an insured group health plan will not relinquish its grandfather status immediately based on a change in the employer contribution rate if, upon renewal, an issuer requires a plan sponsor to make a representation regarding its contribution rate for the plan year covered by the renewal, as well as its contribution rate on March 23, 2010 (if the issuer does not already have it). Additionally, the issuer’s policies, certificates, or contracts of insurance must disclose in a prominent and effective manner that plan sponsors are required to notify the issuer if the contribution rate changes at any point during the plan year.
- In addition, a group health plan that requires either fixed-dollar employee contributions or no employee contributions will not cease to be a grandfathered plan if the employer contribution rate changes so long as there continue to be no employee contributions or no increase in the fixed-dollar employee contributions towards the cost of coverage and there are no corresponding changes in coverage terms that would otherwise cause the plan to cease to be a grandfathered plan. Click here to read the final rules in their entirety.
- Annual Limit Of What Insurer Pays Cannot Be Adjusted. Some insurers put a limit on the amount that they will pay each year for covered services. If the insurers wish for their plans to retain their grandfathered status, they cannot tighten any annual dollar limit in place as of March 23, 2010. Furthermore, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high-cost enrollees).
- Insurance Companies May Be Changed. While an employer with a group health plan can change the company that administers the plan without losing grandfathered status, the new administrator cannot change the plan in a way that makes it non-compliant with the above stipulations.
Grandfathered Multiemployer Health Plans
Additionally, the rules clarify that the addition of a new contributing employer (or new group of employees of an existing contributing employer) to a grandfathered multiemployer health plan will not affect the plan’s grandfathered status, provided that the multiemployer plan is compliant with the requirements to remain a grandfathered plan.
Additional Requirements to Maintain Grandfathered Status—Disclosure and Recordkeeping
A final requirement for plans to retain grandfathered status is that they include a statement about their belief that the plan is a grandfathered one, along with contact information for questions and complaints, in any plan materials provided to a participant or beneficiary describing the benefits provided under the plan. The U.S. Department of Labor provides a model notice that may be used to satisfy this requirement.
In addition, to maintain status as a grandfathered health plan, a plan must maintain records documenting the exact terms of the plan that was in effect on March 23, 2010, and any other documents necessary to verify, explain or clarify its status as a grandfathered health plan. Such documents could include plan documents, certificates or contracts of insurance, summary plan descriptions (SPDs), documentation of premiums or the cost of coverage, and documentation of required employee contribution rates. These records must be available for as long as the plan is referred to and treated as a grandfathered plan.