This is the second in a series of articles about health care reform.
Q.1 What is a grandfathered plan?
A.1 Group health plans in effect on March 23, 2010, are considered grandfathered plans. Having grandfathered plan status significantly affects the application of health care reform. Certain deadlines for changes are extended and other changes do not apply at all. Interestingly, the Patient Protection and Affordable Care Act (PPACA) focuses on a covered individual's ability to maintain the same coverage in place at the time of enactment, rather than an employer's right to maintain existing plans.
Q.2 So how does an employer maintain a plan's grandfathered status?
A.2 As with the implementation of many other aspects of health care reform, the finer details pertaining to retaining grandfathered status are still to be determined. It is clear that enrolled individuals may add family members to their coverage if on March 23, 2010, the plan permitted this enrollment. It is also clear that new employees and their families can be enrolled without jeopardizing the plan's grandfathered status. Apart from these two allowances, PPACA is silent on the changes that may be made to a grandfathered plan without losing grandfathered status or even if grandfathered status can be lost. There is hope that some design changes are permissible, because earlier versions of health reform bills expressly prohibited changes. But before more guidance on this is issued, any changes to a grandfathered plan should be very carefully considered.
Q.3 Why does maintaining grandfathered status matter?
A.3 Grandfathered plans will have delayed effective dates for certain changes and may never have to make other changes. However, there are still provisions that apply to these plans and some changes will occur (see Q&As below). Certain features of PPACA take effect for grandfathered and other plans as of the first day of the plan year that begins six months after enactment (September 23, 2010). For a calendar year plan, the first plan year beginning after September 23, 2010, will begin January 1, 2011. Other changes must be made to grandfathered and other plans in later years.
Q.4 Can a grandfathered plan have annual or lifetime limits on benefits?
A.4 No. Effective for plan years beginning after September 23, 2010, no grandfathered or other plan may place lifetime limits based upon the dollar value of "essential benefits." Essential benefits is a term that will be defined by the Secretary of Health and Human Services and must include services in ten categories of coverage: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services. Dollar-based annual limits can only be imposed upon essential benefits until 2014 to the extent permitted in guidance to be issued by the Secretary. After 2014, no dollar-based annual limits may be imposed on essential benefits. Certain benefits not considered essential can be subject to dollar-based lifetime and annual limits. It appears that both essential and nonessential benefits can still have non-monetary based limits (i.e., number of visits). These requirements may increase the cost of insured plans and will make stop-loss insurance more critical for self-insured plans.
Q.5 What changes regarding dependent coverage must be made?
A.5 For plan years beginning after September 23, 2010, if coverage is offered for dependent children it must be extended to adult children up to age 26. But grandfathered plans need only offer this coverage to adult children who are not eligible for their own employer provided coverage. Beginning in 2014, these dependent children must be allowed in all employer plans (whether or not grandfathered) regardless of whether or not they are eligible for other employer provided coverage. For more discussion on this coverage requirement, read our first Health Care Reform Series article.
Q.6 What about pre-existing condition exclusions?
A.6 No plan, grandfathered or new, may impose pre-existing condition exclusions on children under the age of 19 for plan years after September 23, 2010. This prohibition on pre-existing conditions exclusions expands to apply to all individuals regardless of age in 2014, for both grandfathered and other plans.
Q.7 Are eligibility waiting periods affected?
A.7 In 2014, waiting periods for eligibility purposes may not exceed 90 days for grandfathered or other plans.
Q.8 Are rescissions of coverage allowed?
A.8 For plan years after September 23, 2010, grandfathered and other plans may not rescind coverage unless the covered individual committed fraud or made an intentional misrepresentation of a material fact. A rescission is retroactive cancellation of coverage after an individual has submitted claims. This provision does not prevent an employer from completely terminating a plan.
Q.9 What are the requirements for a new plan or plan that has lost its grandfathered status?
A.9 In addition to the provisions discussed above, there are some provisions only applicable to new plans or plans that are unable to retain grandfathered status. We won't address the full scope of these provisions here, but we will direct your attention to a few key ones. Along with the above mentioned reforms, changes to the claims appeals process will alter the continuation of benefits during appeals and incorporate external reviews. Additional restrictions on pre-approval requirements are added. Cost sharing for coverage of certain preventive care and immunization benefits will no longer be permitted. Of significant concern to some employers, Internal Revenue Code
§ 105(h), a tax code provision that now applies only to self-funded health plans, will apply to all non-grandfathered plans. This code section applies nondiscrimination requirements relating to coverage, eligibility and benefits under health plans. This means that fully insured non-grandfathered plans will not be able to discriminate in favor of highly compensated employees.
As with most provisions in health care reform, the sections applicable to grandfathered plans will need clarification through administrative guidance. For more information, contact one of the Compensation and Employee Benefits attorneys below or the Leonard, Street and Deinard attorney with whom you regularly work.
Go to Health Care Reform page.