The Affordable Care Act (PPACA) specifically exempts “grandfathered plans”- those plans that were in effect on March 23, 2010 - from having to implement a number of the Act’s requirements. Thus, it is vital for employers and administrators of these grandfathered plans to understand what changes they must make in 2010 and in future years. To view a new table from the Department of Labor on how certain requirements of health care reform relate to Grandfathered Plans, please click here.
Update: The Departments of Labor, Health and Human Services and Treasury have issued interim final rules on changes permitted to health plans for maintaining "grandfather" status under the Affordable Care Act. Among other highlights, the rules specify that plans will lose their “grandfather” status if they significantly cut benefits or increase out-of-pocket spending for consumers. However, premium changes are not taken into account when determining whether or not a plan is grandfathered. For more information, please click here or see "Maintaining Grandfather Status" below.
The following is a timeline of required key changes to grandfathered health plans:
What Must Be Done in 2010
Extend Dependent Coverage Up to Age 26
The Affordable Care Act requires plans and issuers that offer dependent coverage to make the coverage available until a child reaches the age of 26. Both married and unmarried children qualify for this coverage. This rule applies to all plans in the individual market and to new employer plans. It also applies to existing employer plans unless the adult child has another offer of employer-based coverage (such as through his or her job). Beginning in 2014, children up to age 26 can stay on their parent's employer plan even if they have another offer of coverage through an employer.
Prohibit Lifetime Limits
For plan years starting on or after September, 23, 2010, grandfathered health plans may not impose lifetime limits on coverage for “essential health benefits.” Essential health benefits will be further defined by the U.S. Department of Health and Human Services.
Restrict Annual Limits
For plan years starting on or after September 23, 2010, grandfathered group health plans are prohibited from imposing annual limits other than on "restricted" annual limits. Plans issued or renewed beginning September 23, 2010, will be allowed to set annual limits no lower than $750,000. This minimum limit will be raised to $1.25 million beginning September 23, 2011, and to $2 million beginning on September 23, 2012. Beginning in 2014, plans may not impose annual limits on coverage. Waivers for the annual limit rules are available to limited benefit plans. Click here for guidance on the waiver process.
Drop Pre-Existing Condition Exclusions for Children
For plan years starting on or after September 23, 2010, grandfathered group health plans must not exclude or limit coverage to children on the basis of pre-existing conditions. Effective Jan. 1, 2014, group health plans may not impose pre-existing condition exclusions or limitations on adults or children.
No Rescission of Coverage
For plan years starting on or after September 23, 2010, grandfathered health plans are prohibited from rescinding a participant’s coverage, absent fraud or an intentional misrepresentation of material fact.
Required Change in 2011
No Reimbursements for Over-the-Counter Drugs Not Prescribed
For expenses incurred after Dec. 31, 2010, distributions from HSAs or Archer MSAs, or reimbursements for FSAs or HRAs, qualify only if made for a medicine or drug that is a prescribed drug, or insulin. Over-the-counter medicine obtained with a prescription will continue to be a qualified medical expense.
What Grandfathered Plans Must Do in 2014
No Exclusions for Dependent Coverage
In 2014, grandfathered group health plans offering dependent coverage will need to continue to make this coverage available until age 26, even if the adult child is eligible to enroll in another employer-sponsored health plan.
No Annual Limits
In 2014, grandfathered group health plans may not set any annual limits on essential benefits coverage.
No Excessive Waiting Periods
For plan years starting on or after Jan. 1, 2014, grandfathered health plans may not apply waiting periods for coverage that exceed 90 days.
Maintaining Grandfather Status
The Departments of Health and Human Services, Labor, and Treasury have issued interim final rules on grandfathered plans- health coverage in place on March 23, 2010. The rules clarify what changes can occur to health plans without them losing their “grandfather” status. Grandfathered plans are exempt from certain requirements of the Affordable Care Act, such as coverage of recommended prevention services with no cost sharing, and guaranteed access to OB-GYNs and pediatricians.
The regulation allows employers and insurers to make “routine” changes to plans without them losing grandfather status. Routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with state or other federal laws. Under the rules, plans will lose their “grandfather” status if they significantly cut benefits or increase out-of-pocket spending for consumers. However, premium changes are not taken into account when determining whether or not a plan is grandfathered.
Compared to their polices in effect on March 23, 2010, grandfathered plans:
- Cannot Significantly Cut or Reduce Benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
- Cannot Raise Co-Insurance Charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill). Grandfathered plans cannot increase this percentage.
- Cannot Significantly Raise Co-Payment Charges. Frequently, plans require patients to pay a fixed-dollar amount 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 the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. 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 bills they receive each year (for example, the first $500, $1,000, or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.
- Cannot Significantly Lower Employer Contributions. Many employers pay a portion of their employees’ premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).
- Cannot Add or Tighten an Annual Limit on What the Insurer Pays. Some insurers cap the amount that they will pay for covered services each year. If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010. Moreover, 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).
- Cannot Change Insurance Companies. If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan. This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.
Disclosure and Recordkeeping Requirement- Model Language Available
The regulation on grandfathered plans requires a plan to disclose to consumers every time it distributes materials whether the plan believes that it is a grandfathered plan and therefore is not subject to some of the additional consumer protections of the Affordable Care Act. This allows consumers to understand the benefits of staying in a grandfathered plan or switching to a new plan. The plan must also provide contact information for enrollees to have their questions and complaints addressed. Click here for Model Language that can be used to satisfy this disclosure requirement. Model language is also provided in the interim final rules.
Under the interim final rules, to maintain status as a grandfathered health plan, a plan or issuer must also maintain records documenting the terms of the plan or health insurance coverage that were in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan.
Ways Grandfather Status Can Be Revoked
To prevent health plans from using the grandfather rule to avoid providing consumer protections, the regulation:
- Revokes a plan’s grandfathered status if it forces consumers to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing as a means of avoiding new consumer protections
- Revokes a plan’s grandfathered status if it is bought by or merges with another plan simply to avoid complying with the law.