The post below is a guest blog from W. Hunter Walton, JD who serves as Principal, Health & Welfare Consultant for CAI’s employee benefits partner Hill, Chesson & Woody.
Grandfathered status is a designation with great significance because grandfathered plans are exempt from certain requirements of the Patient Protection and Affordable Care Act (PPACA). Though most employers understand the term, questions remain about the exceptions to grandfathered status when it comes to healthcare reform.
What Qualifies As Grandfathered Status?
A grandfathered health plan is one in which the plan has not made significant changes to the benefits provided since March 23, 2010 (the PPACA enactment date). This includes the cost-sharing provisions, even if the plan design has not changed. Any plan that has more than a 5 percent cost adjustment for the employee loses grandfathered status.
A plan will lose grandfathered status if any of the following occurs:
- Elimination of a benefit that treats a particular condition.
- An increase in a percentage cost-sharing requirement (i.e., coinsurance), regardless of the amount.
- An increase in a deductible or out-of-pocket maximum by more than 15 percent (plus medical inflation).
- An increase in co-payment that exceeds the greater of $5 (adjusted for medical inflation) or medical inflation plus 15 percentage points.
- A decrease in the employer contribution rate toward the cost of any tier of coverage by more than 5 percentage points.
How Does A Grandfathered Health Plan Differ?
Grandfathered plans are exempt from certain market reform requirements, including: preventive care mandates; internal and external review; nondiscrimination based on income; choice of provider; emergency care at in-network rates; clinical trial coverage; cost-sharing and deductible maximums; guaranteed issue and renewal; and rating restrictions.
Grandfathered health plans are not exempt from requirements related to annual and lifetime limits, they are not required to offer dependent coverage to age 26, they are not limited in their rescission of coverage or pre-existing condition exclusions, they are not subject to new waiting period limits, employer mandates and many new tax provisions.
Grandfathered Status Annual Notification
Employers have an annual requirement to notify participants regarding their grandfathered status. The notice must include a statement that the plan is believed to have grandfathered status and contact information for an employee who has questions or complaints. A notice must be provided in any plan materials describing benefits for participants or beneficiaries. Generally, this includes a Summary Plan Description (SPD), a Summary of Material Modification (SMM) or benefit enrollment materials.
If a plan is grandfathered, any changes to plan design should be compared to what the plan’s terms were as of March 23, 2010. A plan will not lose its grandfathered status if insurance carriers or third-party administrators are changed, which was a later amendment to the grandfathered rules issued for insured policies that changed carriers on or after Nov. 15, 2010. It is becoming increasingly difficult to maintain grandfathered status. Most plan sponsors who have a grandfathered plan are aware of that fact and are familiar with the requirements to maintain that status. However, it is possible that a plan that was previously believed to be grandfathered could lose that status due to a seemingly minor change in plan design.
Hill, Chesson & Woody can help your business understand some of the more complex details of the Patient Protection and Affordable Care Act. For more detail, visit the healthcare reform section of our website..
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