Employee Benefits Alert: The Patient Protection and Affordable Care Act - Grandfathered Plans

The Patient Protection and Affordable Care Act (the “Act”) implemented numerous insurance and benefit reforms for group health plans.  However, many of these changes will not apply to “grandfathered plans.”  Plans in effect on March 23, 2010, the date of enactment, are grandfathered plans. 

Preserving Grandfathered Status

In order to take advantage of grandfathered status the plan must not do any of the following:

• Eliminate or substantially reduce benefits (For example - no longer covering healthcare services for a major diagnosis category such as diabetes, cystic fibrosis, or HIV/AIDS);
• Increase coinsurance charges;
• Increase copayment levels by more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. (For example - increasing copayments from $30 to $50 between 2010 and 2012);
• Increase deductibles by more than the medical inflation percentage plus 15 percentage points. (For example - increasing the deductible from $500 to $750);
• Decrease the percentage of employer cost sharing by greater than 5 percentage points. (For example - decreasing the employer cost-sharing percentage and increasing employee cost-sharing percentages from 10% to 20%);
• Add or tighten annual limits on what the insurer pays – capping or decreasing the annual dollar amount covered by a plan for specific services or adding an annual dollar limit maximum where one did not exist on March 23, 2010; and
• Change insurance companies – purchasing insurance from an insurance company other than the insurance company providing the insurance on March 23, 2010. (For example, if a plan solicits and then moves their coverage to another carrier, it will lose its grandfathered status).

These restrictions are effective from the date of enactment, March 23, 2010.  However, agencies may disregard changes that modestly exceed the changes made before June 14, 2010, the date the regulations were published.  For change made in good faith compliance with the terms of the Act prior to June 14, 2010, plans may revoke any impermissible changes prior to the start of the next plan year on or after September 23, 2010.

Preserving grandfathered status puts numerous limitations on the plan; therefore, you should determine whether the benefits of retaining grandfathered status are worth the limitations imposed.  Below are some of the provisions of the Act that do not apply to grandfathered plans.

• The plan must permit an individual to select a participating primary care provider, or pediatrician in the case of a child.  The plan must provide direct access to obstetrical or gynecological care without a referral and the plan must not require prior authorization or increased cost sharing for out-of-network emergency services.
• The plans must provide an effective internal appeals process for coverage determinations and claims and comply with any applicable State external review processes. If the State has not established an external review process that meets minimum standards or the plan is self-insured, the plan or issuer shall implement an external review process that meets standards established by the Federal government.
•  Plans must not discriminate against health care providers acting within the scope of their professional license and applicable State laws.
• Plans must cover certain preventive services, immunizations, and screenings, without any cost sharing.
• Plans must disclose, to the Federal government and the State insurance commissioner, certain enrollee information such as claims payment policies and practices and enrollee rights.  Additionally, such plans are required to provide information to enrollees on the amount of cost-sharing for a specific item or service.
• The requirement that plans not discriminate in favor of highly compensated individuals, previously applicable to cafeteria plans, is now applicable to all fully-insured group health plans.
• Plans are prohibited from requiring the disclosure or collection of any information relating to the presence or storage of a lawfully possessed firearm or ammunition in the residence or the lawful use, possession or storage of a firearm or ammunition by an individual.

A grandfathered plan is still required to comply with several provisions of the Act.  For the first plan year following September 23, 2010 (most commonly calendar year 2011), the plan must still:  (1) eliminate lifetime dollar limits on benefits; (2) not permit recession of coverage except in the case of fraud or material misrepresentation of a material fact; and (3) permit dependants to remain covered up to age 26 as long as the dependant does not have coverage from his/her own employment.  Additional requirements become effective for plan years on of after January 1, 2014. 

Additionally, if you choose to maintain the plan as a grandfathered plan, you must include a statement in any plan material provided to a participant or beneficiary describing the benefits provided under the plan, stating that the plan believes it is a grandfathered plan within the meaning of section 1251 of the Act and provide contact information for questions and complaints.  In the event that you choose to maintain the plan as a grandfathered plan please contact us regarding updating your plan materials, including your Summary Plan Description. 

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This employee benefits article is provided as general information for clients and friends of Gibney, Anthony & Flaherty, LLP. It does not constitute, and should not be construed as, legal advice. The contents of this article may be considered attorney advertising in some states.