Health Care Reform

Grandfathering Restrictions

The information provided here is designed to help plan sponsor understand the restrictions that apply to a grandfathered plan. You may wish to explore the following:

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  • Grandfathering Eligibility Questionnaire

    The following chart helps a plan sponsor assess whether a particular plan option is eligible to elect grandfathered status. If you answer yes to any question, the plan is not eligible for grandfathering.

    With regard to the
    upcoming plan year…

    If Yes…

    Have benefits in effect on March 23, 2010 been eliminated?

    A plan will lose grandfathered status if (1) all or substantially all benefits to diagnose or treat a particular condition were eliminated or (2) benefits were eliminated for a necessary element to diagnose or treat a condition. Click here to see an example

    Has there been any increase in coinsurance percentage since March 23, 2010? (e.g. 1%)?

    Any increase in coinsurance will cause the plan to lose grandfathered status. Click here to see an example. Click here to see an example
    Has there been any increase in deductible or out-of-pocket maximum since March 23, 2010?
    Any increase in deductible or out-of-pocket maximum by more than the rate of medical inflation since March 23, 2010 plus 15% will cause the plan to lose grandfathered status. Click here to see an example
    Has there been any increase in copayment amounts?
    An increase in the copayment amount that was in effect on March 23, 2010 by more than the greater of (1) the rate of medical inflation since March 2010 plus $5 or (2) the rate of medical inflation since March 2010 plus 15% will cause the plan to lose grandfathered status. Click here to see an example

    Has the employer contribution for any tier of coverage decreased by more than 5% below the employer contribution rate for the coverage period that included March 23, 2010?

     

    Any reduction in the employer contribution rate toward the cost of any tier of coverage for any class of similarly situated individuals by more than 5% below the employer contribution rate for the coverage period that includes March 23, 2010, will cause the plan to lose grandfathered status. If self-insured, the contribution rate would be based on COBRA valuation. Click here to see an example
    Will the plan have had a change in its annual limits since March 23, 2010?

    A plan will lose its grandfathered status if any of the following occur:

    (1) Adding an overall annual dollar limit to a plan that had no annual or lifetime dollar limits on March 23, 2010.Click here to see an example

    (2) Adding an annual limit (to a plan that had a lifetime limit but no annual limits) with a lower dollar value than the lifetime limit in effect on March 23, 2010. Click here to see an example
    (3) Decreasing the dollar value of the annual limit on a plan or coverage below the value on March 23, 2010.  Click here to see an example

  • Other Changes that Could Jeopardize Grandfathered Status

    In addition to the plan changes described above, a plan can also lose grandfathered status as a result of any of the following:

    • If employees are moved among or between plans for purposes of evading Health Care Reform requirements.
    • If the principal purpose of a merger, acquisition or similar business restructuring is to cover new individuals under a grandfathered plan.
    • If employees are transferred from a plan they were covered under on March 23, 2010 to a receiving plan which, if it was treated as an amendment to the transferor plan, would cause the transferor plan to lose its grandfathering status. Note: Does not apply to a bona fide employment-based reason.
  • Other Permissible Changes
    • Employees may move between benefit options at annual enrollment without affecting the grandfathered status of either option. New employees may enter into the plan without impacting grandfathered status.
    • If the employer changes third party administrators or insurers, typically grandfathering would not be lost solely for this reason.
    • Plans amended to comply with federal or state legal requirements will not lose grandfathered status.
    • Plans amended to enhance benefits will not lose grandfathered status solely for this reason.
  • Open Questions

    There are many unanswered questions with regard to grandfathering. Some may be answered in additional agency guidance. The following are a few examples of frequently asked questions that are not answered directly by the interim final regulations on grandfathering:

    • The rules are unclear as to grandfathered status if changes are made to the plan's structure such as moving from an HMO to a PPO.
    • The rules are unclear as to grandfathered status if the plan's network is altered.
    • The rules are unclear as to grandfathered status if the plan's prescription drug formulary is altered.

On March 23, 2010, a plan provides treatment for cystic fibrosis and mental health disorders. If the plan eliminates the treatment for cystic fibrosis or if the plan eliminates an element of coverage that is necessary to treat a mental health disorder, the plan would lose grandfather status.

On March 23, 2010, a plan has a coinsurance requirement of 20% for inpatient surgery. The plan is subsequently amended to increase the coinsurance requirement to 25%. The increase in the coinsurance requirement from 20 to 25% causes the plan to lose grandfathered status.

On March 23, 2010, a plan has a deductible of $1,000 per covered individual. The plan is subsequently amended to increase the deductible to $1,200. This represents a 20% increase in the plan deductible. Medical inflation for the period from March 23, 2010 until the date of the amendment is 22.69%. Thus, the permissible maximum increase is 37.69% (22.69% + 15%). Because 20% does not exceed 37.69%, the change in the deductible does not cause the plan to lose grandfather status.

  • On March 23, 2010, a plan has a $30 copayment requirement for office visits for specialists. The plan is subsequently amended to increase the copayment to $45. Medical inflation for the relevant period is 25.27%.

  • The increase in the copayment from $30 (the copayment that was in effect on March 23, 2010) to $45, is $15 or, if expressed as a percentage, 50% (45 - 30 = 15; 15 ÷ 30 = 0.5; 0.5 = 50%).

  • The increase that would cause a plan to lose grandfather status is the greater of the following:
  • $6.26 ($5 x 0.2527 = $1.26; $1.26 + $5 = $6.26), or
  • 40.27% (0.2527 = 25.27%; 25.27% + 15% = 40.27%).

  • Because $15 exceeds $6.26 and 50% exceeds 40.27%, the change in the copayment requirement causes the plan to lose grandfather status.

On March 23, 2010, a plan provides two tiers of coverage (employeeonly and employee plus family). The employer contributes 80% of the total cost of coverage for employee-only and 60% of the total cost of coverage for employee plus family. Subsequently the employer reduces the contribution to 50% for employee plus family coverage, but the same contribution for employee-only coverage. The decrease of 10 % for employee plus family coverage in the employer contribution rate based on cost of coverage causes the plan to lose grandfather status. The fact that the contribution rate for employeeonly coverage remains the same does not change the results.

An employer's plan did not have an annual limit or a lifetime limit on March 23, 2010. The employer adds an annual limit of $750,000 to the plan after March 23, 2010. The plan would lose grandfather status.

An employer's plan had a $2 million dollar lifetime limit but no annual limit on March 23, 2010. The employer adds an annual limit of $750,000 to their plan after March 23, 2010. The plan would lose grandfather status because the annual limit is less than the value of the lifetime limit that was in place.

An employer's plan had a $1 million annual limit on March 23, 2010. The employer changes the annual limit to $750,000 after March 23, 2010. The plan would lose grandfather status because the annual limits decreased since March 23, 2010.

American Fidelity Assurance Company does not provide tax or legal advice.

ESB-900(0713)

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