New Rule for Grandfathered Plans
Under the Patient Protection and Affordable Care Act (PPACA), health plans that existed on March 23, 2010 are generally considered “grandfathered plans.” Grandfathered plans are exempt from some of the health care reform requirements, including coverage of preventive care services with no cost-sharing and patient protections such as guaranteed access to OB-GYNs and pediatricians.
Regulations were issued on June 17, 2010 regarding grandfathered plans. These regulations provided that certain changes to an existing plan could cause the plan to lose its grandfathered status. For example, plans could lose grandfathered status by significantly increasing costs or reducing benefits under the plan. Under the initial rule, plans would also lose grandfathered status by changing insurance policies, even if no other prohibited changes were made to the plan.
The Departments of Labor, Health and Human Services and Treasury (the Departments) have now amended the grandfathered plan regulations to permit insured group health plans to change insurance policies or carriers.
Under the amended rule, group health plans will no longer automatically lose their grandfathered status merely because of a change in the plan’s insurance policy, certificate or contract of insurance. However, making any other prohibited change will still cause a loss of grandfathered status.
Reasons for the Amendment
The Departments stated the following reasons for reversing their position on this rule:
- The initial rule treated insured group health plans differently than self-funded group health plans. Insured group health plans were not able to change issuers or policies without losing grandfathered status, while self-funded plans could change their third-party administrators (TPAs), as long as they did not make any other prohibited change. The amended rule allows all group health plans to keep their grandfathered status when changing insurance companies or TPAs.
- A group health plan may not have a choice about changing its insurance issuer; for example, if the issuer withdraws from the market. Under the new rule, the plan sponsor can maintain grandfathered status if it has to contract with a new issuer.
- The initial rule unnecessarily restricted the ability of issuers to reissue policies to current plan sponsors for administrative reasons not related to the underlying terms of the plan. Issuers can now transition policies to a subsidiary or consolidate policies without losing grandfathered plan status.
- The initial rule potentially gave issuers undue and unfair leverage in negotiating the price of coverage renewals with grandfathered plan sponsors, which could interfere with competition and cost containment