GRANDFATHERED STATUS DEFINITIONS & GUIDELINES

Transcription

1 GRANDFATHERED STATUS DEFINITIONS & GUIDELINES Why is grandfathered status important? Grandfathered employer-sponsored group health plans are exempt from some of the health care reform law s provisions, including those related to coverage of preventive care, internal and external review of claim denials, coverage of emergency care, access to certain providers, and nondiscrimination standards for insured plans. For plans that are not grandfathered including non-grandfathered collectively bargained plans these provisions were effective for the first plan year starting on or after September 23, 2010, (January 1, 2011 for calendar year plans). For precise information on the provisions affected by grandfathered status, see Willis Health Care Reform Employer Guide Coverage Reforms Applicability & Penalties. How does an employer-sponsored plan become grandfathered? A plan is grandfathered if it covered at least one individual on March 23, 2010, and it has continuously covered at least one individual which need not be the same individual at all times since then. In addition, to remain grandfathered, a plan must maintain (and make available for examination) documentation of its terms on March 23, 2010 and its qualification for grandfathered status. A grandfathered plan must also include a statement that the plan believes it is a grandfathered health plan along with contact information in any description of plan benefits that is provided to participants (model language is available for this disclosure). What would cause loss of grandfathered status? Certain changes made on or after March 23, 2010 will cause an employer-sponsored group health plan to lose grandfathered status. Disqualifying changes include those listed in the chart on the following page. All items in the chart refer to alteration of plan terms as in effect on March 23, EXAMPLE A plan that has a $500 deductible on March 23, 2010 increases its deductible to $550 effective January 1, 2014 and $600 effective January 1, For 2014, the plan determined that the $50 (10%) increase over the March 23, 2010 deductible did not cause a loss of grandfathered status. For 2017, the plan will assess whether the $100 (20%) cumulative increase over the March 23, 2010 deductible causes a loss of grandfathered status. In addition to being assessed in comparison to the plan terms in effect on March 23, 2010, all grandfather determinations are made separately for each group health benefit package offered. Special Rules. Under transition rules, certain changes that become effective after March 23, 2010 are deemed effective on March 23 or may be corrected. For fully insured collectively bargained plans that are subject to one or more collective bargaining agreements ratified before March 23, 2010, there is a variation in how the grandfather rules apply. The transition rules and rules for fully insured collectively bargained plans are explained in Willis Human Capital Practice Alert, July 2010, Regulations on Grandfathered Plans and Willis Human Capital Practice Alert, November 2010, Agencies Amend Grandfather Regulations

2 Changes Relative to Plan as in Effect on March 23, 2010 Resulting in Loss of Grandfathered Status Ceasing to cover at least one individual at any time. Has Change Occurred Since March 23, 2010? Yes No Providing benefits through a new insurance policy with coverage effective before November 15, Increasing any coinsurance percentage. Decreasing any annual dollar limit. Eliminating benefits to treat/diagnose a condition. Decreasing the employer s percentage contribution rate for any coverage tier more than 5 percentage points below the percentage in effect on March 23, Adding a smoker, spousal or other surcharge after March 23, 2010, if applying the surcharge to any coverage tier decreases the employer s percentage contribution rate more than 5 percentage points below the percentage in effect on March 23, 2010 rate for those subject to the surcharge. Adding a coverage tier after March 23, 2010, if the employer s percentage contribution rate for the new tier is more than 5 percentage points below the March 23, 2010 rate for the coverage tier(s) that would have applied on March 23, Increasing a deductible or out-of-pocket maximum by more than 15% plus the medical inflation () percentage (see discussion below) above the amount in effect on March 23, Increasing a copayment in effect on March 23, 2010 (or adding a new copayment after that date) if the amount of the increase (or the new copayment) is more than the greater of (1) $5 (as increased by ), or (2) 15% plus the percentage as of the date of the change. Adding an overall annual dollar limit if no overall annual or lifetime dollar limit was in effect on March 23, Decreasing the overall annual dollar limit as in effect on March 23, Adding an annual dollar limit that is lower than the lifetime dollar limit in effect on March 23, In some cases, moving a group of employees to a grandfathered plan (unless employmentbased). Acquiring a company for the principal purpose of adding a new group of individuals to a grandfathered plan. What is the percentage? The percentage is the percentage increase in a specified index of medical inflation during the period from March 2010 to the effective date of a plan change. The index specified for this purpose is the overall medical care component of the Consumer Price Index for All Urban Consumers (unadjusted) published by the Department of Labor using the base of 100. For March 2010, this number was When determining whether a change has resulted in loss of grandfathered status, a plan may use the index number for any of the 12 months before a change is effective, and will presumably choose the highest of those numbers. As of our February 2017 update, the latest available index number was from

3 December 2016 which was 21.26%. Note that the highest available index number in the 12 month period from January 1, 2016 through December 31, 2016 was December 2016 at 21.26%. It is expected that future index numbers will increase, resulting in progressively higher percentages. The following chart lists the cumulative percentage for each month since March CUMULATIVE PERCENTAGE MARCH 2010 DECEMBER 2016 April May % June % May June % July % June % July % August % July % August % September % August % September % October % September % October % November % October % November % December % November % December % January % December % January % February % January % February % March % February % March % April % March % April % May % April % May % June % May % June % July % June % July % August % July % August % September % August % September % October % September % October % November % October % November % December % November % December % January % December % January % February % January % February % March % February % March % April % March % April % May % April % May % June %

4 July % August % September % October % November % December %

5 EXAMPLE A plan that has an $800 deductible on March 23, 2010 increases its deductible to $1,200 effective January 1, If the $400 (50%) increase over the March 23, 2010 deductible is greater than 15% plus the percentage for January 1, 2017, the plan loses its grandfathered status as of January 1, The plan can use the index number for any of the 12 months from January 1, 2016 through December 31, 2016 to determine the percentage for January 1, As of January 1, 2017, the highest percentage during the 12 month period (January 1, 2016 through December 31, 2016) was that for December 2016, when the percentage was 21.26%. Use of the highest percentage during the relevant 12-month period is permitted. As of January 1, 2017, therefore, the maximum cumulative percentage increase in a deductible over the March 2010 level that was consistent with retaining grandfathered status was 36.26% (15% plus the 21.26% percentage). Because the percentage was not high enough to accommodate the 50% ($400) deductible increase, the plan loses grandfathered status on the effective date of the deductible increase, i.e., on January 1, What changes won t eliminate grandfathered status? The federal agencies issuing the regulations have said that some changes will not, by themselves, cause loss of grandfathered status. (Of course, loss of grandfathered status will occur if such changes are accompanied by disqualifying changes.) Changes Having No Effect on Grandfathered Status Enrolling new hires. Providing benefits through a new group insurance policy with coverage effective November 15, 2010 or later, if previous terms are disclosed to the new insurer and none of the disqualifying changes listed above occurs. Normal elections by participants to enroll or drop dependents or to change coverage at annual enrollment or other appropriate times. Changing a self-insured plan s TPA, if none of the disqualifying changes listed above occurs. Moving from a self-insured to an insured arrangement effective November 15, 2010 or later, if previous terms are disclosed to the new insurer and none of the disqualifying changes listed above occur. Moving from an insured to a self-insured arrangement effective November 15, 2010 or later, if none of the disqualifying changes listed above occur however, no guidance has yet been issued on this change and it is expected that the federal agencies would scrutinize closely. Changing plan year Increasing or adding benefits Adding a new benefit package or option (like an HMO in addition to an existing high-deductible health plan option) will not affect the existing benefit package, but the new option (the HMO) will not be grandfathered. Making changes needed to comply with federal or state law, if none of the disqualifying changes

6 listed above occurs. Making changes to voluntarily comply with the health care reform law earlier than required, if none of the disqualifying changes listed above occurs. Eliminating coverage for a segment of the workforce. Adding a requirement to address same-sex marriages or formalize domestic partner relationships. Adding or changing a wellness program, if a disqualifying cost-sharing increase or other disqualifying change listed above does not occur. Changing employees cost for coverage, if none of the disqualifying changes listed above occurs. Changing copayments, deductibles, out-of-pocket limits and other cost sharing, if none of the disqualifying changes listed above occurs. The agencies are still considering whether certain changes should result in loss of grandfathered status. Changes with Unclear Effect on Grandfathered Status Altering plan structure (e.g., changing a major medical plan into an HRA), if none of the disqualifying changes listed above occurs. Significantly changing provider network, if none of the disqualifying changes listed above occurs. Revising prescription drug formulary, if none of the disqualifying changes listed above occurs. For details on the grandfather rules, see Willis Human Capital Practice Alert, July 2010, Regulations on Grandfathered Plans and Willis Human Capital Practice Alert, November 2010, Agencies Amend Grandfather Regulations.