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.

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 a grandfathered plan.

Note: The grandfather provision exempts plans for some, although not all, provisions of Health Care Reform.

Maintaining Grandfathered Status

To maintain grandfathered status, plans must:

  • Include a statement, in any plan materials provided to participants or beneficiaries, describing those benefits provided by the plan or health insurance coverage believed to be grandfathered.
  • Maintain records that document the benefit terms in effect on March 23, 2010, and explain/verify the plan's grandfathered status.
  • Provide contact information for questions and complaints.

Plans that made minor, routine changes due to reasonable interpretation of statutory requirements prior to the release of interim final regulations will:

  • Enjoy a departmental enforcement grace period.
  • Have the opportunity to revoke or modify changes that might cause them to lose grandfathered status.

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 Act 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.
  • Guaranteed availability and renewability of health insurance coverage.
  • Annual cost-sharing limits.

A chart summarizing some of the provisions of Health Care Reform and how they apply to grandfathered plans is available from the U.S. Department of Labor.

Plan Changes You Can Make Without Affecting Your Grandfathered Status

  • Switching to a different insurance carrier (for a group health plan) if the effective date of the new policy is after November 15, 2010.
  • Cost adjustments to keep pace with inflation rates.
  • Addition of or minor adjustments to current benefits.
  • Voluntary adoption of new health care mandates, such as dependent care coverage to age 26.
  • Changes to comply with federal or state laws.
  • Addition of new family members (dependents).
  • Addition of new employees (subscribers).
  • Change in third-party administrator (for self-funded plans).
  • Premium changes.

Grandfather status is preserved if the changes are revoked, and the plan or coverage is modified, as of the first day of the first plan or policy year beginning on or after September 23, 2010, to bring the terms within the limits for retaining grandfather status in these interim final regulations.

Plan Changes that Could Affect Your Grandfathered Status

  • Elimination of substantially all benefits to diagnose or treat a particular condition.
  • Elimination of benefits for any necessary element of diagnosis or treatment for a particular condition.
  • Any increase in a percentage cost-sharing requirement above the level in effect on March 23, 2010.
  • An increase in fixed-amount cost sharing (such as deductibles or out-of-pocket limits except for co-pays) greater than "maximum percentage increase," which is medical inflation plus 15 percent.
  • An increase in fixed-amount co-pays that exceeds the greater of 1) the "maximum percentage increase" or 2) $5.00 increased by medical inflation.
  • A decrease in the contribution rate for any coverage tier by more than 5 percent.
  • A new or modified annual or lifetime limit on the dollar value of benefits.
  • Switching to a different insurance carrier if the effective date of the new policy is before November 15, 2010.

Grandfathered Status: Factors to Consider

Employers who significantly cut benefits or increase out-of-pocket spending for consumers will lose their grandfather status. However, some companies may decide that having the flexibility to modify health care programs to control costs outweighs the benefits of grandfather protection.

 

Only You Can Decide

Consider whether the following statements related to your plans are true or false, or changes you would like to make to your health care benefits:

My existing plan gives special benefits to highly-compensated employees or my company pays a higher percentage of premiums for highly compensated employees than it does for other employees, and I would like this to benefit to continue for highly compensated employees.
True False

If you answered "True" to the statement above and your plan provided coverage on or prior to March 23, 2010, then you should consider maintaining your plan's grandfathered status. Note that making any of the following changes to your plan could jeopardize your plan's grandfathered status.

  1. I would like to decrease the amount of money my company is contributing toward employee health care.
    True False
  2. I plan to control company costs by increasing employee co-pays or deductibles.
    True False
  3. I would like to impose a new annual dollar limit or decrease the existing annual limit on benefits for my plan.
    True False
  4. I plan to eliminate benefits to diagnose or treat a particular condition.
    True False
  5. I may transfer employees to another plan or plan option without a bona fide employment-based reason for the transfer.
    True False

If you answered "False" to all six statements above and your plan provided coverage on or prior to March 23, 2010, your plan may be eligible to maintain its grandfathered status, based on current federal guidelines. If you answered "True" to any of the six statements above, your plan will likely no longer be considered grandfathered once you make any of the changes referenced.

Does Your Current Plan Already Meet the Health Care Reform Requirements?

  1. Our company plan provides preventative health services and immunizations with no cost-sharing.
    True False
  2. Health insurance is guaranteed to be available and renewable to all employees.
    True False
  3. Our company plan does not discriminate based on health status.
    True False
  4. Our company plan does not favor highly-compensated employees by covering a larger percentage of premiums or providing additional benefits to HCEs.
    True False
  5. Employees can choose their primary care providers, including an ob/gyn and pediatrician.
    True False
  6. Our plan does not require prior authorization or increased cost-sharing for certain emergency services performed in connection with a legitimate emergency.
    True False

If you answered "True" to all the questions above, you likely won't see a significant cost or administrative burden to immediately comply with the HCRA, and maintaining grandfathered status is not a major consideration for your company.

 

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:

  • Provide you with information if you're interested in additional insurance options.
  • Educate you on the new requirements during health plan renewal.
  • Provide resources to help you explain the changes to your employees.
  • Follow the latest regulations to keep you informed about any legislative changes that affect you and your business.

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 877-393-8868 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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