Grandfathering Plans
Frequently Asked Questions (FAQ)
What is a grandfathered plan?
A plan is grandfathered if it provided coverage to participants on, or before, March 23, 2010.
If I change the waiting period or employer contribution of my grandfathered plan, will that affect the grandfathered status of my plan?
On Monday, June 14, the U.S. Department of Health and Human Services, Department of Labor, and Department of the Treasury issued interim final rules that address what changes can be made to health insurance coverage or a group health plan without causing it to lose its "grandfather" status. According to the rule, the following changes will cause a loss of a plan's grandfather state:
- Eliminating all, or a substantial number of, benefits to diagnose or treat a particular condition
- Increasing a coinsurance or other percentage-based, cost-sharing requirement above the level at which it was set on March 23, 2010
- Increasing an annual deductible or out-of-pocket limit by a total percentage — measured from March 23, 2010 — that exceeds the sum of the medical inflation rate plus fifteen percentage points
- Increasing a co-payment by an amount that exceeds the greater of (1) the amount just described for other fixed-amount, cost-sharing requirements, or (2) $5.00 increased by the medical inflation rate since March 23, 2010
- Decreasing the rate of employer contributions by more than five percentage points below the rate that was in effect on March 23, 2010
- Adopting or decreasing an annual benefit limit with the specific rules depending on whether the plan had already imposed an annual or lifetime limit as of March 23, 2010
What are the repercussions to an employer for losing grandfathered status?
A grandfathered health plan is exempt from many of the requirements under Health Care Reform, including: non-discrimination rules; establishment of new appeals procedures; and cost-sharing limits. If a plan loses its grandfather status, the plan will need to meet all the new requirements created for group health plans.
If an employer is currently not paying 50 percent of the employee group coverage and passing along the majority of the cost of the premium to the employees, do they need to disclose that for purposes of grandfathering the plan?
On June 14 2010, guidance was issued relative to grandfathered plans. Included in the regulations was a requirement that in order to maintain grandfather status, an insurer or plan must include a statement in any plan materials that describes the benefits provided under the plan, that it is "believed" that the plan meets the requirements of a grandfathered plan, and contact information for questions or complaints. The guidance also provided model language that can be used to satisfy this disclosure requirement.
We changed health care plans on May 1, 2010. Would we be considered grandfathered?
On June 14, 2010, guidance on grandfathered health plans was issued to identify that certain plan changes would cause a plan to lose its grandfather status. If a plan loses grandfather status, it will be required to follow many of the new requirements under Health Care Reform to which it was previously exempt. These changes include significantly raising deductibles and cutting benefits, as well as changing insurance companies.
On November 15, 2010, the Departments of Health and Human Services, Labor and Treasury issued an amendment (effective the same day) to the regulations previously issued in June regarding grandfathered health plans. Under this amendment, a group health plan would not lose that status if it changes insurance carriers as long as it does not make any of the other changes listed in the original regulation (including benefit eliminations, cost-sharing percentage increases, certain fixed-amount cost-sharing increases, certain employer contribution rate reductions, and annual benefit limit decreases.) A plan may lose its grandfathered status depending upon the effective date of the carrier change.
The effective date of this amendment is November 15, 2010, and applies on a prospective basis only; it will not apply to such changes made to group health insurance prior to this date. The date used to determine how this amendment will apply to group health plans is based on the date that the new coverage becomes effective and not the date that the contract for a new policy, certificate, or contract of insurance is entered into. Therefore, for example, if a plan enters into an agreement with an issuer on September 28, 2010, for a new policy to be effective on January 1, 2011, then January 1, 2011 is the new policy effective date and is therefore, the relevant date for purposes of determining the application of the amendment to the interim final regulations. If, however, the plan entered into an agreement with an issuer on July 1, 2010, for a new policy to be effective on September 1, 2010, then the amendment would not apply and the plan would cease to be a grandfathered health plan.
The Department of Labor's Employee Benefits Security Administration has posted the following information related to grandfathered health plans under the Affordable Care Act:
Group health plans and insurers are required to implement an "effective appeals process" for appeals of coverage determination and claims, including both internal and external appeals.
Internal appeals requirements include:
- providing notification to employees of the available internal and external appeals process and the availability of consumer assistance or an ombudsman to assist with the process; and
- allowing enrollees to review their files, to present evidence and testimony as part of the process, and to receive continued coverage pending the outcome of the appeal.
The requirement for the external appeals process can be satisfied by either:
- complying with the applicable state external review process; or
- establishing a process that meets the minimum standards set by the U.S. Department of Health and Human Services, and is similar to the applicable state requirements if the state has not issued guidance or if the plan is self-insured and therefore not subject to state regulation.
This is effective September 23, 2010, and does not apply to grandfathered plans.
If a company keeps their current plans started before March 23, 2010, but adds a high-deductible health plan (HDHP), will the current plans maintain grandfathered status?
The addition of an HDHP plan should not affect the ability for the company's existing plans to maintain grandfathered status; however, the HDHP that is added would not be grandfathered. There are other criteria that could cause the existing plans to lose this status. The company should check with an attorney or benefits provider regarding the status of their plans.
An employer wants to implement different contribution levels depending on whether the participants are smokers or non-smokers. Will this affect the grandfather status?
Based on additional guidance issued September 20, 2010, a group health plan or health insurance coverage will cease to be a grandfathered plan if an employer decreases its contribution rate toward the cost of any level of coverage by more than 5 percentage points below the contribution rate in effect on March 23, 2010.
If a group renews a plan without making any changes, will the plan maintain grandfathered status?
If a group renews the same plan and has not modified the plan in any way that would affect its grandfathered status since March 23, 2010, other than to comply with Health Care Reform provisions (i.e. increasing annual limits on essential benefits), the plan generally will maintain grandfathered status.
If an employer does not currently contribute to a plan, will the plan lose its grandfathered status?
A plan will lose grandfathered status if significant changes are made to the plan that reduce benefits or increase costs to participants. If a plan remains the same as it was on March 23, 2010, it most likely will not lose its grandfathered status.
Paychex Insurance Agency Can Help
Paychex Insurance Agency is a full-service organization that has taken a leadership role in transforming how businesses like yours adapt to and benefit from the rapidly changing insurance industry. We're ready to offer information and assistance to help you navigate the recent Health Care Reform initiatives.
We can help:
- Select an insurance plan if you don't currently offer health coverage.
- Report premium amounts paid (for Paychex Insurance Agency's Insurance Payment Service [IPS] client).
- Stay up to date as laws are clarified, regulations are developed, and guidance becomes available.
Paychex Insurance Agency Can Help
Paychex Insurance Agency is a full-service organization that has taken a leadership role in transforming how businesses like yours adapt to and benefit from the rapidly changing insurance industry. We're ready to offer information and assistance to help you navigate the recent Health Care Reform initiatives.
Health Care Reform Updates
With access to legislative and regulatory specialists in Washington, D.C. and expert, in-house sources of legal and compliance guidance, Paychex Insurance Agency is your source for Health Care Reform knowledge, tools, and resources.
Whether you're looking for a Business Owner Policy, Workers' Compensation insurance or group health and life insurance, Paychex Insurance Agency offers flexible, scalable insurance solutions for you, your business and your employees. To learn more about how we can meet your insurance needs, call 877-266-6850 or have an agent call you.
The Department of Health and Human Services and the Internal Revenue Service (IRS) continue to provide specifics and guidance on the Health Care Reform Act. Paychex will monitor these regulatory developments and provide updates as appropriate.
The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. It is provided for informational purposes only. If you require legal or accounting advice, or need other professional assistance, you should always consult your licensed attorney, accountant, or other federally licensed tax professional to discuss your particular facts, circumstances, and business needs.
back to top
