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Rules would limit employer changes to health care plans
The U.S. Departments of Health and Human Services (HHS), Labor and Treasury have issued
interim final rules (published in the June 17, 2010,
Federal Register) intended to clarify the changes that employers can make to their health care plans and still maintain "grandfathered" status under the Patient Protection and Affordable Care Act, the health care reform law enacted on March 23, 2010. In addition, HHS issued a
fact sheet on the new regulations.
“With the announcement of the new ‘grandfather’ rule, we’re providing the market stability and flexibility to ensure that families and businesses can make the choices that work best for them,” said Secretary of Health and Human Services Kathleen Sebelius, in an official
But according to a
response from Susan Eckerly, senior vice president of the National Federation of Independent Business, the rules on grandfathered plans "mean small businesses will be left with even less choice and flexibility. Instead, they will be faced with the difficult choice of paying more to maintain grandfathered coverage, shopping for a new (and more expensive) plan or possibly dropping it entirely."
What Are "Grandfathered" Plans?
Employer-provided health plans that existed as of March 23, 2010,
are "grandfathered" and do not have to comply with the new requirements to offer preventive health without cost sharing, establish external review procedures for the claims appeal process, cover clinical trials, and comply with certain quality of care reporting requirements, among other health reform mandates.
However, even grandfathered plans are subject to some new rules
for plan years starting after Sept. 23, 2010,
including no lifetime limits, no
“restricted” annual limits (e.g., annual dollar-amount limits on coverage below standards to be set in future regulations),
no pre-existing condition-exclusion requirements, and the requirement to cover adult children until they reach age 26. (See the
SHRM Online article "‘Grandfathered’
Spared Some Reform Mandates.")
'Routine" Changes Permitted
The interim final rules clarify that plans will lose their grandfather status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers. Grandfathered health plans will be able to make routine changes to their policies and maintain their status. These routine changes include:
“The rule we are announcing today will allow employers to make routine and modest adjustments to co-payments, deductibles and employer contributions to their employees’ premiums without forfeiting grandfather status. This flexibility will encourage employers to continue offering health coverage to their employees and help to ensure coverage for all Americans,” said a statement by Secretary of Labor Hilda Solis.
'Significant' Changes Imperil Exemption
Plans will lose their grandfathered status, however, if they choose to make significant changes that reduce benefits or increase costs to employees. Details about what routine changes insurers and employers can make without losing their grandfathered status, and the projected impact on large and small employer plans, can be found in the HHS
Briefly, under the rule, a health insurance plan can lose its grandfathered status if it eliminates all benefits for a particular condition or if it increases deductibles or co-payments by more than the rate of medical inflation plus 15 percentage points.
Allowable Percent Change in Co-Payments from 2010
Medical inflation* (4%) + 15% = 19%
Medical inflation* (4% x 3 years = 12%) + 15% = 27%
Deductibles or co-payments can increase 15 percentage points above medical inflation over time
* Assumes annual medical inflation at 4%.
Source: U.S. Department of Health and Human Services
In addition, a health plan would lose its grandfathered status if an employer reduces its contribution so that its share of the total cost of coverage declines by more than 5 percentage points below its contribution rate on March 23, 2010, for any tier of coverage affecting any class of similarly situated individuals.
The HHS fact sheet provides further details on these and other restrictions under the interim final rules. According to the fact sheet, compared to polices in effect on March 23, 2010, grandfathered plans:
Notification and Other Requirements
In addition, the interim final rules provide for:
Good Faith Compliance
Recognizing that group health plans may have made design changes since the grandfather date, the preamble to the interim final rules states that changes made in good faith compliance with the health care reform grandfathering requirements prior to the date of the interim final rules release may be disregarded by regulators for enforcement purposes if the changes only modestly exceed the permitted changes described above.
Deadline for written comments from the public on the final interim rules is Aug. 17, 2010. Comments may be submitted online to
www.regulations.gov with identification number RIN 1210-AB42.
Comments may also be sent to:
Office of Health Plan Standards and Compliance AssistanceEmployee Benefits Security Administration, Room N-5653Attention: RIN 1210-AB42U.S. Department of Labor200 Constitution Ave. NWWashington, DC 20210
Next Steps for Plan Sponsors
alert from law firm McDermott Will & Emery LLP advises employers to review their current benefit plan offerings to determine whether the benefits of maintaining grandfathered health plan coverage outweighs the restrictions on plan design and cost-sharing changes imposed by the interim final rules. Employers who decide to retain the grandfathered status of their group health plan should carefully document the plan or policy terms in effect on the grandfather date and include the model grandfather statement in plan materials distributed to participants and beneficiaries.
Employer sponsors of insured group health plans should be aware that their insurance carriers may not continue to offer certain products as grandfathered health plan coverage because of the need to separately track and administer grandfathered policies and non-grandfathered policies.
Stephen Miller is an online editor/manager for SHRM.
SHRM Online Health Care Reform web page
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