• Grandfathered Health Plans - Under the Patient Protections Act and Affordable Care Act
  • June 8, 2010 | Authors: Edward J. Adkins; Lisa K. III; Thomas J. Shallue
  • Law Firm: Miles & Stockbridge P.C. - Baltimore Office
  • The Health Care and Education Reconciliation Act of 2010 (“Reconciliation Act”) was signed into law by President Obama on March 30, 2010. The Reconciliation Act amends the Patient Protection and Affordable Care Act (“PPACA”), which was signed by the President on March 23, 2010. Together, PPACA and the Reconciliation Act (collectively, the “Health Care Legislation”) constitute new health care laws that will have a substantial effect on businesses and individuals.

    The Health Care Legislation contains a “grandfather” provision that exempts certain existing health plans and individual coverage arrangements from many of the new rules. Under the Health Care Legislation, a grandfathered plan is any group health plan or individual coverage arrangement that was in existence on March 23, 2010. A plan does not lose grandfathered status merely because (i) an existing participant as of March 23, 2010 re-enrolls after that date, (ii) an existing participant’s family members enroll in the plan, as long as such enrollment is permitted by the terms of the plan in effect on March 23, 2010, or (iii) new employees, and their families, enroll in the plan. Collectively bargained plans in effect on March 23, 2010 are grandfathered until the date on which the last of the collective bargaining agreements relating to the coverage terminates.

    The Health Care Legislation does not discuss what will cause a grandfathered plan to lose its grandfathered status. Questions remain, for example, as to how much a plan may be changed before it loses its grandfathered status, and also whether corporate transactions, such as mergers, acquisitions or spin-offs, will affect the status of a plan. It is expected that future guidance will clarify the scope of these rules. In the meantime, employers should consider the following “benefits” afforded to health plans that were in existence on March 23, 2010 before making any changes to those plans.

    Benefits of Grandfathering

    The Health Care Legislation exempts grandfathered plans from compliance with the following substantive and procedural requirements.

    • Claims Appeals. The new rule requiring an external review in the plans’ claims and appeals procedures does not apply to grandfathered plans.

    • Emergency/OB/GYN Choice. The requirement that emergency and OB/GYN services be provided without the need for prior authorization or a referral does not apply to grandfathered plans.

    • Nondiscrimination Under Section 105(h). The requirement that insured plans comply with the nondiscrimination requirements of Internal Revenue Code Section 105(h) does not apply to grandfathered plans.

    • Preventive Care. The requirement that health plans provide coverage for certain types of preventive care, such as immunizations, screenings for infants and children, and preventive care for women, at no cost to participants, does not apply to grandfathered plans.

    • Reporting Requirements. Grandfathered plans do not have to comply with the new rule requiring plans to submit annual reports to the Department of Health and Human Services (“HHS”) and to participants on whether the plan (i) improves health outcomes, (ii) implements activities to prevent hospital readmission and improve patient safety, and (iii) implements wellness and health promotion activities.

    • Clinical Trials. Grandfathered plans are not subject to the new rules preventing plans from (i) denying certain individuals participation in certain clinical trials, (ii) denying coverage of routine patient costs for items and services furnished in connection with participation in the trial, and (iii) discriminating against individuals who participate in these trials.

    • Discrimination against Providers. The rule prohibiting plans from discriminating against any health care provider who is acting within the scope of his or her license with respect to participation under the plan does not apply to grandfathered plans.

    • Dependent Coverage. For plan years starting before January 1, 2014, grandfathered plans do not have to extend dependent coverage to adult children who are eligible to enroll in another employer-sponsored health plan. If, however, an adult child is not eligible to enroll in another employer-sponsored health plan, the grandfathered plan must provide coverage through the age of 26 beginning with the first plan year starting after September 23, 2010.

    Health Care Legislation Provisions that Apply Regardless of Grandfathered Status

    Changes to a health plan that result in a loss of grandfathered status will not, however, impact the plan’s obligations under the following major provisions of the Health Care Legislation, as these provisions apply to all group health plans, regardless of their grandfathered status.

    • Preexisting Conditions. Beginning with the first plan year starting after 2013, plans may no longer impose preexisting condition exclusions. For children who are under 19 years of age, this prohibition is effective for plan years starting after September 23, 2010.

    • Annual and Lifetime Maximums. Beginning with the first plan year starting after September 23, 2010, health plans may not impose lifetime limits and may only impose “restricted” annual limitations on “essential health benefits.”  HHS is required to issue regulations defining the term “restricted.” For plan years starting after 2013, however, a group health plan may not impose any annual limits on the value of benefits for any participant or beneficiary.

    • Dependent Coverage. Beginning with the first plan year starting after September 23, 2010, health plans that offer dependent coverage for children must continue to offer this coverage until the adult child reaches the age of 26 (although employers may choose to offer coverage in 2010 and may also choose to cover dependents through age 27). As noted above, grandfathered plans may continue to exclude adult children until 2014 if the children are eligible to enroll in another employer-sponsored health plan.

    • Rescissions. Beginning with the first plan year starting after September 23, 2010, plans may no longer rescind health coverage once a participant is covered under the plan, unless the participant has committed fraud or makes an intentional misrepresentation of material fact.

    • Waiting periods. Beginning with the first plan year starting after 2013, plans are not permitted to require an otherwise eligible employee or dependent to wait more than 90 days to enroll in the plan.

    • Notice. Health plans must give participants at least 60-days advance notice of proposed changes to the plan.

    • W-2 Reporting. For tax years beginning after 2010, employers must report on Form W-2 the aggregate cost of employer-sponsored coverage.

    • Notification Requirements. Not later than March 1, 2013, the Health Care Legislation requires employers to provide written notification to current employees about, among other things, the availability of coverage through an American Health Benefit Exchange (“Exchange”). An employer paying less than 60% of the costs of coverage must provide written notice to employees of the benefits available to employees, such as cost-sharing and tax credits, if the employee purchases coverage through an Exchange. With respect to new employees hired on or after March 1, 2013, this notification must be provided at the time of hiring.

    As indicated above, there is not presently much guidance in regard to the scope of the grandfather provision. The Health Care Legislation gives the Secretary of HHS wide-latitude to implement many of its provisions, so it is expected that future guidance will clarify many of the new rules.