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Beware These Triggers for Losing Grandfathered Status

When the Affordable Care Act was first passed, many employers were under the impression that if they were happy with their current health plan offerings, they could keep them intact. But when they examined the fine print, “they soon understood that keeping their current health plan offerings and maintaining their grandfathered status would not be an easy task,” Amy M. Gordon, a partner in the employee benefits practice at law firm McDermott Will & Emery, told SHRM Online.

With respect to grandfathered health plans, the guidance explains that numerous types of changes will cause a plan to lose its grandfathered status, Gordon noted, including:

  • Changing a medical plan option to eliminate all or substantially all benefits to diagnose or treat a particular condition or to eliminate benefits for any necessary element to diagnose or treat a condition. For example, if a plan provided counseling and medication for mental health before March 23, 2010, the plan cannot be amended to remove medication, even if it keeps the counseling benefits. This amendment would cause the plan to lose its grandfathered status.
  • Increasing any percentage of the cost-sharing requirement, such co-insurance. So if a plan required participants to pay 20 percent of the cost of a routine physical before March 23, 2010, while the plan paid 80 percent, the plan cannot be amended to require participants to pay 25 percent of the cost of this type of exam. This increase in co-pay would cause the plan to lose its grandfathered status.
  • Decreasing the employer contribution rate toward the cost of any tier of coverage for any class of similarly situated individuals by more than 5 percent. The contribution rate is the amount of contributions an employer makes compared with the total cost of coverage (expressed as a percentage). The cost of coverage is based on the COBRA rates. For example: A company pays 70 percent toward the cost of individual coverage, while employees pay 30 percent in a specific benefit option. But the organization decides to change its contribution rate to 60 percent and require employees to pay 40 percent. This 10 percent decrease in the employer's share of the contribution will cause the plan to lose its grandfathered status.
  • Decreasing or imposing a new annual limit on the dollar value of benefits (however, plans with an existing lifetime limit are permitted to adopt an overall annual limit at a dollar value that is lower than the dollar value of the plan’s lifetime limit, subject to agency guidance regarding restrictions on annual limits). So if a plan sponsor decides to implement a new annual $12,000 limit on fertility treatments, without further guidance, this change may cause the plan to lose its grandfathered status.

“Once a plan loses its grandfathered status, it cannot get it back,” Gordon emphasized. “Although employers that self-insure their employees’ group health coverage will not discontinue that coverage, they will need to add additional coverages once they lose their grandfathered status.” For instance, nongrandfathered group health plans must:

  • Cover preventive care on a first dollar basis (no co-pays or deductibles apply).
  • Adopt additional claim appeal procedures.
  • Reimburse for coverage of participation in clinical trials.

“These do not seem like big changes, but each will drive up the cost of coverage,” Gordon said.

In addition, to avoid the shared-responsibility (or “pay or play”) mandate that takes effect Jan.1, 2015, for calendar-year plans, an employer’s group health plan must provide affordable coverage that meets the minimum value requirements. “This means that for employees whose household income falls within 100 to 400 percent of the federal poverty line, those employees may not be charged greater than 9.5 percent of their annual household income for individual health coverage,” Gordon explained.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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