On June 14, 2010 the Departments of Labor, Treasury and Health and Human Services released for public inspection the interim final rules on grandfather status under the Patient Protection and Affordable Care Act (PPACA). If you find these rules convoluted and hard to meet or maintain, keep in mind that you health plan is not losing much if it loses grandfather status as most of the insurance market reforms under PPACA apply to grandfathered plans. In fact, we believe most employers will find the restrictions imposed on group health plans to maintain grandfathered status too costly and complicated in the long run.

What is a Grandfathered Plan?
The interim final rule sets forth a general definition of grandfathered health plan coverage: coverage provided by a group heath plan or health insurance issuer in which an individual was enrolled on March 23, 2010, provided the plan does not make certain changes.

What are the benefits of being a Grandfathered Plan?
The primary advantage of being a grandfathered plan is to avoid some, but not most, of the provisions of health care reform.

Grandfathered Plans are exempt from the following requirements under PPACA:

Preventive Care Benefits requires a group health plan (GHP) to provide certain preventive care benefits, including diagnostic testing and immunizations, as determined by the Secretary of Health and Human Services (Effective for plan years on or after September 23, 2010); Reporting on Quality Care and other financial and claim payment practice to the Centers of Medicare and Medicaid (CMS) (Effective for plan years on or after September 23, 2010); New Appeals Process requirements for internal and external appeals process, including allowing a person to remain covered while an appeal is being reviewed (Effective for plan years on or after September 23, 2010); Emergency Services a group health plan must provide coverage for emergency services in a hospital without prior authorization and must provide the same level of benefit to non-network hospitals as that provided to network hospitals (Effective for plan years on or after September 23, 2010); and Clinical Trials plans must cover routine patient costs for items and services associate with Phase I, Phase II, Phase III and Phase IV clinical trials (Effective for plan years on or after January 4, 2014).

In addition to being exempt from the above patient protections under PPACA, there is a special rule for "Grandfathered" plans relating to the Coverage of Dependent Children to Age 26 provision. Under this special rule, a grandfathered plan may exclude from coverage an adult child who has not attained age 26 if that child is eligible to enroll in employer sponsored coverage other than a group health plan of a parent. This special rule applies only for a limited time (Applies to plan years beginning before January 1, 2014).

What changes under PPACA will Grandfathered Plans be required to make beginning in 2010 (plan years beginning on or after September 23, 2010)?
The major group market reform provisions (noted immediately below) in the "Patient Protection and Affordable Care Act" take effect for plan years beginning on or after September 23, 2010, regardless of whether or not the plan is considered a grandfathered plan.

Prohibition on Preexisting Condition Exclusions for those under the Age of 19. Plan years beginning on or after September 23, 2010. Prohibition on lifetime and annual limits (regulations to be issued shortly). Plan years beginning on or after September 23, 2010, Dependent Child Coverage - A group health plan or health insurance issuer (group and individual policies) offering dependent coverage of children must make such coverage available for children until attainment of 26 years of age (see special limited rule for grandfathered plans above). Plan years beginning on or after September 23, 2010. Prohibition on Rescissions - A group health plan and a health insurance issuer offering group or individual health insurance coverage may not rescind such plan or coverage once an enrollee is covered under the plan. Prohibition on Excessive Waiting Periods - A group health plan and a health insurance issuer offering group or individual health insurance coverage may not apply a waiting period that exceeds 90 days. Effective Date: Plan years beginning on or after January 1, 2014. Prohibition on Preexisting Condition Exclusions - No preexisting condition exclusions for participants of any age. Effective Date: Plan years beginning on or after January 1, 2014. Summary of Coverage and Standardized Definitions - More on this in the Fall Group Scoop. Notice of Material Modifications - If a plan makes any "material modifications" to the terms of the plan or coverage that is not reflected in the most recently provided summary of benefits, the plan must notify participants no later than 60 days prior to the date on which such modification will become effective. Note: This is a big change from current law. Under current law, plans have 60 days from the date the plan sponsor makes an amendment to the plan to notify plan participants. Effective Date for Material Modifications - Apparently, this provision will apply to grandfathered health plans for plan years beginning on or after 24 months after the date of enactment (March 23, 2010). "

What are the requirements for a Group Health Plan to maintain "Grandfathered" status?
Under the interim regulations, a Grandfathered Group Health Plan loses "Grandfathered" status if:

The Plan eliminates or substantially reduces benefits to diagnose or treat a medical condition. For example, if a health plan provides benefits for mental health conditions that include counseling and prescription drug coverage and the plan subsequently eliminated coverage for counseling, the Plan would lose its grandfathered status. Any increase, measured from March 23, 2010, in a percentage cost-sharing requirement (such as an individual's coinsurance requirement). For example, a plan loses its grandfathered status by increasing the coinsurance from 20% to 25%. An increase, measured from March 23, 2010, in a fixed-amount cost-sharing requirement other than a copayment (for example, deductible or out-of-pocket limit) if the increase exceeds a convoluted calculation, called the "maximum percentage increase" which involves deriving the medical care component of the Consumer Price Index and adding 15 percentage points. An increase in a fixed-amount copayment, measured from March 23, 2010, if the increase exceeds the greater of another convoluted calculation. A decrease in the contribution rate (based on cost of coverage or a formula) by employers or employee organizations by more than 5 percentage points below the contribution rate for the coverage period that includes March 23, 2010. Imposing an annual limit on the dollar value of benefits if the plan on March 23, 2010 did not impose an overall annual or lifetime limit. Imposing an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit existing on March 23, 2010, for a plan that had an overall lifetime limit but no overall annual limit on March 23, 2010. A group health plan that on March 23, 2010 imposed an overall annual limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan decreases the dollar value of the annual limit (regardless of whether the plan also imposed an overall lifetime limit on March 23, 2010). A merger, acquisition or similar business restructuring if the principal purpose of the activity is to cover new individuals under a grandfathered plan. Transferring employees into an otherwise grandfathered plan when no bona-fide employment-based reason exists. Entering into a new policy, certificate, or contract of insurance after March 23, 2010 (because, for example, any previous policy, certificate, or contract of insurance is not being renewed).

Special Rule Collectively Bargained Plans
Fully-insured collectively bargained plans ratified before March 23, 2010 are considered grandfathered health plans at least until the date on which the last of the collective bargaining agreements relating to coverage that was in effect on March 23, 2010 terminates. Any amendment made to bring the plan into compliance with the health reform law is not treated as a termination of the collective bargaining agreement. After the date on which the last collective bargaining agreements terminates, the determination of whether the plan retains grandfathered status is made based on the same rules that apply to non-collectively bargained plans. This special rule does not apply to self-funded collectively bargained plans.

Disclosure and Documentation of Grandfather Status
To maintain grandfather status, a plan must include a statement, in any plan materials given to participants describing the benefits provided under the plan, that the plan believes it is a grandfathered health plan and must provide contact information for questions and complaints. The interim final rule provides model language for this disclosure requirement. Here is the model statement as it appears in the draft regulation:

This [group health plan or health insurance issuer] believes this [plan or coverage] is a "grandfathered health plan" under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits. Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform. This website has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]

For compliance related questions, contact David Follansbee, Director of Operations/Compliance at dfollansbee@dgb-online.com