• Grandfathered Plan Regulations Clarified
  • November 23, 2010 | Authors: Wilhelm L. Gruszecki; Kari Knight Stevens
  • Law Firm: Blank Rome LLP - Philadelphia Office
  •  On November 15, 2010, Treasury, DOL and HHS, the three agencies responsible for administering the recent Health Care Reform legislationamended the interim final regulations first published on June 17, 2010 (75 FR 34538) (“Interim Final Regulations”) relating to “grandfathered health plans.”   Generally, a “grandfathered health plan” is a group health plan or health insurance coverage in existence on March 23, 2010 that is subject only to certain provisions of health care reform.   Grandfathered health plan status is meant to enable individuals to retain their existing coverage.  For a complete description of the Interim Final Regulations see http://www.blankrome.com/index.cfm?contentID=37&itemID=2248.

    Except with regard to certain collectively bargained plans, the Interim Final Regulations provided that if an employer or employee organization enters into a new policy, certificate, or contract of insurance after March 23, 2010,  that policy, certificate, or contract of insurance will not be a grandfathered health plan with respect to individuals in the group health plan.  The amendments reverse that position and provide that a group health plan (and any health insurance coverage offered in connection with a group health plan) will not cease to be a grandfathered health plan merely because the plan (or its sponsor) enters into a new policy, certificate, or contract of insurance after March 23, 2010.   The amended Interim Final Regulations will apply only to changes to group health insurance coverage that are effective on or after November 15, 2010.  If a new policy, certificate, or contract of insurance became effective prior to November 15, 2010, the pre-amendment Interim Final Regulations apply. 

    To retain grandfathered health plan status,  a group health plan that enters into a new policy, certificate, or contract of insurance must provide to the new health insurance issuer (and the new health insurance issuer must require) documentation of plan terms (including benefits, cost sharing, employer contributions, and annual limits) under the prior health coverage sufficient to determine whether a change causing a termination of grandfathered health plan status has occurred otherwise under the Interim Final Regulations.

    The amended Interim Final Regulations are in response to concerns identified in comments on the Interim Final Regulations.  These concerns included that the initial provision treated insured group health plans less favorably than self-insured group health plans which could change third party administrators without relinquishing grandfathered status (as long as other requirements were met); the uncertainties resulting from an involuntary change in an insurer (the issuer withdraws from the market); the uncertainties resulting from a change in the issuer (a subsidiary of the original issuer issuing a policy); and the issuer had been given an undue and unfair leverage in negotiating the price of coverage renewals with the sponsors of grandfathered health plans.

    Comment:  Although the amended Interim Final Regulations provide additional flexibility, the issuance of the amendments at this late date may not provide sufficient time for sponsors of calendar year plans to react.  To the extent a calendar year plan is able to take advantage of the relief, plan administrators will need to make sure that the required disclosure of grandfathered status is included in participant materials providing summaries of the benefits available under the grandfathered group health plan.