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Jul 2010
14
July 14, 2010

Grandfathering Rules and Patient Protection Rules

Question

Answer

1.         Basically, by 2014 there will not be any grandfathered plans?

The grandfather rules are designed to limit the amount of time that a group health plan will be considered a grandfathered plan.  The Department of Health & Human Services estimates that most plans will lose their grandfathered status by 2014—though it is possible that some plans will continue to maintain their grandfathered status beyond that date.

2.         Do carve-out components of a health care offering, such as a disease management program, if eliminated, cause one to loose grandfather status?

Eliminating a feature of a plan may jeopardize grandfathered status if the change causes the elimination of all or substantially all benefits to diagnose or treat a particular condition.  If deleting a disease management program only changes the way that the plan manages the treatment of an individual, but does not eliminate or substantially eliminate coverage for the diagnosis and treatment of a particular condition, then deleting a disease management program should not cause the plan to lose grandfathered status.

3.         Must we provide model notices for plan provisions that already comply with the new rules?  It's hard enough to get employees to read the open enrollment booklet without additional clutter.

Yes.  Even if your plan is compliant with the new regulations, participants still need to be apprised of their new rights under the legislation and failure to actually call out those new rights may be deemed to be defective notice to the participants.

Plans must provide four new notices to eligible employees:

(1) notice regarding special enrollment rights must be provided to a child under age 26 who is not covered because of previously being too old to be covered by the plan;

(2) notice regarding the plan's intent to remain a grandfathered plan must be included in any plan materials provided to participants or beneficiaries;

(3) a notice must be given to group health plan participants that lifetime limits no longer apply, and that an individual is once again eligible for benefits under the plan if they previously incurred expenses in excess of the lifetime maximum; and

(4) notice must be provided to all group health plan participants of : (a) a participant's right to choose a primary care provider or a pediatrician when a plan requires designation of a primary care physician or (b) the participant's ability to obtain obstetrical or gynecological care without prior authorization. 

The model notices are very brief and may generally be included with open enrollment materials or the SPD—but they must be given prominence so that employees are likely to notice them.
4.         Do change to a plan structure – HRA to HMO or fully insured to self-insured – result in a loss of grandfathered status?  What about changes in a network plan’s provider network?  Rx drug formulary?

As currently written, changing plan structure, provider network or Rx drug formulary will not automatically result in a loss of grandfathered status.  However, HHS, DOL and IRS are seeking comments on whether such changes should result in loss of grandfathered status and have reserved the right to make adjustments to the rule—which would only be applied prospectively from the date such change is announced.

Also keep in mind that making such changes could still trigger a loss of grandfathered status if it causes other changes that by themselves would result in loss of grandfathered status—such as entering into a new policy, certificate or contract of insurance; diminishing the availability of benefits; increasing deductibles, co-pays or other co-insurance amounts; increasing employee contribution rates; or decreasing annual limits.
5.         I understand that a CBA will still allow us to maintain grandfathered status – can you confirm?

Collectively bargained plans (including both fully- and self-insured) that were in place on March 23, 2010 also qualify for grandfathered status.  Moreover, any requirements that apply generally to grandfathered plans (such as coverage for young adults, prohibitions on lifetime limits and phase out of annual limits, etc.) also apply to grandfathered collectively bargained plans.

When it comes to losing grandfathered status, self-insured collectively-bargained plans are subject to the same rules as any other health plan.  An insured grandfathered collectively bargained plan, however, will not lose its grandfathered status before the last CBA relating to that coverage expires.  Whether the plan will thereafter continue to be grandfathered will be determined under the general grandfathering rules, starting with a comparison of the plan as it exists when the last CBA expires with the plan as it existed on March 23, 2010.
6.         Our current health insurance provider is Midwest Security.  They are now part of United Healthcare.  As of 1/1/2011 they will not be offering any Midwest Security plans and will have to switch to a United Healthcare plan.  Will this cause us to lose our grandfathered status? The regulations provide that if an employer enters into a new policy or certificate of insurance after March 23, 2010 (for example, because the previous policy is not being renewed), then the new policy is not a grandfathered health plan with respect to the individuals in the plan.  Unfortunately the regulations do not distinguish between a voluntary and an involuntary switch in insurance contracts (an involuntary switch may not have been contemplated by the drafters) so, barring further guidance on this type of situation, it is likely the plan will lose grandfather status as of 1/1/2011. 
7.         So if we have a self-funded plan and freeze enrollment eligibility so no new people come onto the plan, is this considered a plan change?  We are offering another coverage. This change alone would not cause the plan to lose grandfathered status.  However, if you are planning to eliminate a plan option or merge plans, you should discuss with counsel the potential impact on your plan’s status as a grandfathered plan.
8.         Will you elaborate on why you feel HRAs may not survive HCR?

We believe that stand‑alone HRAs may not survive because they will be subject to the rule that prohibits a plan from imposing annual and lifetime limits on benefits.  Because HRAs are generally capped at a specific dollar amount, these limitations would make an HRA untenable.  If the HRA is integrated with the medical plan benefits instead of as a stand‑alone plan, however, we believe the annual and lifetime limits will not apply separately to the HRA. 

Employers who have replaced traditional health plan benefits for retirees with an HRA can also avoid the reform rules by moving the retiree benefits into a separate plan.  This is because stand‑alone retiree plans are exempt from the health care reform provisions, including the annual and lifetime limit prohibitions.
9.         We are being told by our dental carrier that health care reform doesn’t apply to dental plans – is that correct? A "limited-scope" dental or vision plan is exempt from health care reform if the benefits are provided under a separate policy, certificate or contract of insurance or are otherwise not an integral part of the health plan.  Dental or vision benefits are not an "integral" part of the health plan, even if they are provided under the same plan document, if a participant has the right to elect not to receive the dental or vision coverage and, if the participant does elect to receive the coverage, he or she must pay an additional premium or contribution for it.
10.       To clarify, are you saying annual and lifetime limits are no longer allowed on dental and vision for children? For plan years beginning on or after September 23, 2010, a plan may not impose lifetime limits on "essential health benefits," which include oral and vision care pediatric services for children.  However, as noted in the answer to question 9 above, limited-scope dental and vision plans are exempt from this rule.  Therefore, we expect that this prohibition on annual and lifetime limits for pediatric oral and vision care will only apply to such services covered by the medical plan and that annual limits will still be permitted for most dental and vision plans.
11.       Are mini-med plans going to be grandfathered?  Or are they doomed to extinction? While the long-term status of mini-med (or limited benefit) plans remains in doubt, they are not necessarily doomed in the short term. The annual and lifetime limit regulations permit (but do not require) HHS to create a program where the application of the restricted annual dollar limits to a plan may be waived if the limits would cause a "significant loss of coverage or increase in premiums." However, given the approaching deadline for the application of restricted dollar limits, there is limited time for HHS to issue guidance establishing a waiver program.
12.       Can we change our employee contribution amount in 2011 or will we lose our grandfathered status? It is possible your plan could lose its grandfathered status if you change the amount of an employee’s contribution by too much. An employer’s contribution rate, as a percentage of the entire cost of coverage, cannot decrease by more than 5 percentage points from the rate in effect on March 23, 2010.
13.       We communicated during our 2010 open enrollment, that in 2011 we would implement spousal requirements requiring an employee's spouse to participate in their employer's medical plan if they have access to it, or pay a spousal surcharge.  Will this jeopardize our grandfathered status? Possibly, depending upon whether the surcharge results in a decrease of more than 5 percentage points in the employer’s contribution rate for similarly situated individuals.
14.       Can you "get around" some of the cost increase resulting from the elimination of plan limits by imposing frequency/visit limits? Possibly, but imposing limits on the frequency of visits could create compliance problems with some of the other health care reform requirements.  You should discuss this with counsel.
15.       If the Rx co-pay is increased, but wrapped with an HRA to keep the employee’s cost neutral, will that cause grandfathering to be lost? We believe that the answer is yes if the Rx copay is increased above the permitted amounts (the greater of $5 or 15%, adjusted for medical inflation) and the HRA dollars are not restricted for use with the Rx copay.  If the HRA is limited to reimbursement of Rx copay amounts, the answer may be no.

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