Understanding and interpreting the sweeping 2010 health care reform law should include an understanding of the “grandfathering” provisions of the Patient Protection and Affordable Care Act signed into law on March 23, 2010, as amended one week later by the Health Care & Education Affordability Reconciliation Act.
The grandfathering relief allows certain plans in effect on the reform act's enactment date to avoid many of the new rules. Nevertheless, there are some health care reform provisions that do apply to grandfathered plans. Therefore, it is important not only to understand what makes a plan “grandfathered” but also to distinguish between those provisions that are and are not applicable to grandfathered plans.
Grandfathered Plans Defined
A “grandfathered health plan” is any group health plan or individual coverage that was in effect on the date of the new law’s enactment. Even if an individual may re-enroll in a grandfathered health plan or new employees (and their families) may be added to the plan after March 23, 2010, the plan’s grandfathered status continues.
Likewise, an individual who was covered by a grandfathered health plan may add his or her dependents to the plan after March 23, 2010, without negating the plan’s grandfathered status as long as the plan allowed for dependent/family coverage on March 23, 2010. It was not clear immediately whether a significant modification of coverage under a plan design would alter its grandfathered status.
Separately, collectively bargained multi-employer and single-employer plans in effect on March 23, 2010, are not subject to the reform law rules (as amended by the reconciliation act) until the date on which the last of the collective bargaining agreements relating to the coverage terminates. At that time, a collectively bargained plan is then subject to health care reform rules and, assuming that it remains grandfathered (based on the rules then in effect), it would have to comply with the requirements for grandfathered plans.
The reform law provides, however, that a collectively bargained plan is permitted to be amended early for some or all of the law’s rules. This voluntary amendment will not be treated as a termination of the collective bargaining agreement that might otherwise subject the plan to an earlier compliance deadline.
Provisions Applicable to Grandfathered Plans
Although grandfathered plans are generally able to avoid the application of many of the new law’s requirements, some key health coverage access and reform provisions will still apply to non-collectively-bargained grandfathered health plans. In reviewing these rules, it is important to focus on the effective dates. Some are effective with the first plan year that begins on or after Sept. 23, 2010, (e.g., six months after enactment of the reform law). That means Jan. 1, 2011, for calendar year plan years. Other provisions are effective for plan years beginning on or after Jan. 1, 2014.
The following provisions are generally effective Jan. 1, 2011, for calendar year grandfathered plans (technically effective for plan years beginning on or after Sept. 23, 2010):
• Pre-existing conditions. Elimination of pre-existing condition exclusions from group health plans for children under the age 19.
• Dependent coverage (for plan years beginning on or after the date that is six months after enactment and before Jan. 1, 2014). Requirement that group health plans provide coverage for adult dependent children up to age 26 only if the child is not eligible to enroll in other employer-provided coverage (other than in a grandfathered plan).
• Elimination of coverage rescissions. Rescission refers to the practice of canceling coverage after someone has submitted medical claims. Rescission would still be permitted if an individual committed fraud or made an intentional misrepresentation of a material fact.
• Coverage limits. Requirement that group health plans eliminate lifetime maximum limits on coverage of essential benefits and the elimination of certain annual limits. It should be noted that group health plans will continue to be able to place limits on the amount covered for certain medical procedures.
The following provisions are generally effective Jan. 1, 2014, for calendar year grandfathered plans:
• Dependent coverage. Requirement that group health plans provide coverage for adult dependent children up to age 26, excluding dependent children eligible to enroll directly in another employer's health plan. (The reconciliation measure allows plans to exclude dependent coverage from taxable income up to the end of the year before the dependent reaches age 27—so if a dependent turns 26 in June, the plan can provide non-taxable coverage to the end of that year.)
• Excessive waiting periods. Elimination of enrollment waiting periods in excess of 90 days.
• Pre-existing conditions. Elimination of pre-existing condition exclusions.
• Coverage limits. Elimination of annual limits on benefits.
Provisions Not Applicable to Grandfathered Plans
Although the reconciliation act subjects grandfathered health plans to various reform law requirements, there are still some key requirements that continue not to apply to grandfathered health plans. Some of the key provisions are:
• Section 105(h). The application of Internal Revenue Code Section 105(h) to insured group health plans.
• Claims appeals. The new rules for processing claims appeals do not apply to grandfathered health plans.
• OB-GYN choice. The requirement that women be permitted to select an OB-GYN of their choice. The physician would still have to abide by certain plan rules.
• Preventive care. The requirement that certain preventive care benefits be provided under group health plans.
Of course there are many other provisions that would not apply to grandfathered plans, and this list is not meant to be exhaustive.
Paul M. Hamburger is a partner and Washington, D.C. head of the Proskauer Employee Benefits, Executive Compensation & ERISA Litigation Practice Center.
James R. Napoli is a senior counsel in the Practice Center, and resident in the firm’s Washington, D.C. office. Both are members of the recently launched Proskauer Health Care Group.
Proskauer is an international law firm providing a wide variety of legal services to clients worldwide in all areas of employment law. Republished with permission. © 2010 Proskauer Rose LLP. All rights reserved.
Editor’s Note: This article should not be construed as legal advice.
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