Understanding Grandfathered Plans
Health care reform, signed into law on March 23, 2010, includes revisions to how companies administer and report health care information for employer-sponsored health plans. Some plans, however, may be exempt from certain requirements under a "grandfather" provision.
What is the Grandfather Provision?
The "grandfather" provision delays the time a new rule will apply to some plans or may even provide a complete exemption from the rules for other plans.
Grandfathered plans can keep most of their current coverage terms and require fewer changes to plan documents and administrative procedures. But the grandfather provision is ambiguous and has some exceptions, and plans may not be grandfathered indefinitely. For example, the grandfather provision doesn't exempt employers from the W-2 reporting requirement.
Final health care reform regulations have not been released. Based on the information and guidance received to date, for plan years that begin on September 23, 2010 or later, all plans (regardless of grandfathered status) must be amended to:
- prohibit annual and lifetime benefit caps.
- require coverage of dependents to age 26.*
- prohibit rescissions of insurance coverage.
- prohibit pre-existing condition exclusions for participants under 19.
- disallow reimbursements to FSAs, HSAs, and HRAs for over-the-counter medicines and drugs, unless prescribed by a physician.
* Grandfathered plans are not required to provide coverage to dependents who have access to an employer-provided health care plan until after January 1, 2014.
By the end of tax year 2011, employers will be required to report on the value of health coverage on employees' Forms W-2, excluding medical flexible spending accounts (FSAs).
The provision provides virtually no guidance as to what actions could cause a plan to lose its grandfathered status. Even seemingly routine changes to plans, such as increasing or reducing the employer-paid portion or modifying the eligibility criteria could jeopardize a plan's grandfathered status. Therefore, employers who want to preserve their grandfathered status should refrain from making changes until additional information is available to clarify these issues.
Is your plan "grandfathered"?
Plans that provided coverage on or prior to March 23, 2010, are grandfathered. If your plan did not provide coverage until after March 23, 2010, it is not exempt under the grandfather provision.
If eligible under the grandfather provision, what is your plan exempt from?
If it is grandfathered, your health care plan is exempt from some of the health care reform requirements, including:
- covering preventive health services at no cost to plan participants
- prohibiting health benefits that favor highly compensated employees
- providing appeals and external review procedures
- covering emergency services without authorization
Paychex Insurance Agency Can Help
An essential partner to over 550,000 businesses nationwide, Paychex closely monitors legislation that affects our clients. With access to legislative and regulatory specialists in Washington, D.C. and utilizing expert, in-house sources of legal and compliance guidance, Paychex Insurance Agency will continue to provide the latest information on health care reform.
Paychex Insurance Agency is ready with the coverage you need, when you need it. To speak with a licensed insurance representative about the right plans for your business, your employees, and yourself,call 877-393-8868 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.
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