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Health Care Reform: What Is a Grandfathered Plan?

When the Affordable Care Act (the Act) was passed on March 23, 2010, various health care coverage rules were imposed on health plans.  Some of these rules do not apply to health plans that were in effect as of March 23, 2010.  These plans are referred to as “grandfathered.”

Recently, the three agencies charged with administering the Act (HHS, DOL, and Treasury) have issued clarification as to what exactly a grandfathered plan is, and the various changes made by health plans that would lose their grandfathered status.

Grandfathered plan protection

If a plan is grandfathered, the plan will still need to comply with many of the Act’s mandates.  However, grandfathered plans are exempt from the following mandates:

  • Required coverage for in-network emergency services;
  • Required first-dollar coverage for certain in-network preventive services
  • A prohibition on restricting the designation of primary care providers or requiring referrals for OB/GYN services;
  • Required coverage of routine expenses for participation in clinical trials;
  • Enhanced claim appeal procedures, including implementation of an external appeals process;
  • A prohibition on discriminating in favor of highly compensated individuals (i.e., applying the same nondiscrimination rules to both insured and self-funded plans).

Keeping grandfathered status

In order for a plan to retain its grandfathered status, it must not make any significant coverage or cost sharing changes to the plan.  Here are the changes that grandfathered plans would be prohibited from making, or else they would lose grandfathered status:

  • Cannot significantly cut or reduce benefits.
  • Cannot raise co-insurance charges.
  • Cannot significantly raise co-payment charges.
  • Cannot significantly raise deductibles.
  • Cannot significantly lower employer contributions.
  • Cannot add or tighten an annual limit on what the insurer pays.
  • Cannot change insurance companies, however self funded plans may change Third Party Administrators. [As of 11/15/10, HHS has removed this requirement. Plans can change insurance companies and remain grandfathered if the remaining items stay the same.]

Grandfathered health plans pros and cons

Employers will need to consider whether the advantages of keeping grandfathered status protection outweighs the cost sharing flexibility associated with non-grandfathered plans.  There are many unknowns at this point how the insurance exchanges beginning in 2014 will affect group health plans, but the HHS estimates that only about 55% of large employers and 34% of small employers will remain grandfathered by 2013.

For more information about grandfathered plans, see www.Heathcare.gov

Grandfathering FAQs on the HHS website

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