• New FAQs Clarify Rules Regarding Grandfathered Status and Coverage Rescissions
  • November 5, 2010 | Author: Mary V. Bauman
  • Law Firm: Miller Johnson - Grand Rapids Office
  • The IRS, DOL and HHS jointly issued a set of FAQs regarding Health Care Reform on October 11, 2010. The guidance provides helpful clarification regarding grandfathered status and coverage rescissions.

    Grandfathered Status

    • The current regulations provide that if a self-funded health plan becomes fully-insured or a fully-insured health plan switches to a new insurer, grandfathered status is lost.
      The FAQs reiterate previous guidance that the departments are reviewing this rule and will issue further guidance as to the circumstances a plan may change insurers without jeopardizing its grandfathered status.
    • The current regulations prohibit a grandfathered plan from decreasing the employer’s contribution rate toward the premium by more than 5 percent after the date Health Care Reform was enacted on March 23, 2010. This rule applies on a tier-by-tier basis. Where an employer restructures its premium rates, the FAQs provide that any new tier should be compared to the corresponding prior tier. For example, if an employer had a single and family tier structure in effect on March 23, 2010 and changes to a single, double and family premium structure for 2011, the new double and family rates would need to be compared to the family rate as of March 23, 2010 for purposes of the requirement.
    • If an employer charges different premiums based on participation in a wellness program, the different rates must be considered in evaluating whether the employer contribution rate decreases by more than 5 percent after March 23, 2010.

    For example, if, as of March 23, 2010, the employer paid 90 percent of the cost of single coverage and for 2011 changed its contribution rate to 87 percent of the cost of coverage for single employees participating in its wellness plan and 84 percent for employees who do not, the new premium structure would trigger a loss in grandfathered status because the non-participants in the wellness program would experience a more than 5 percent decrease in the employer contribution rate for their coverage.

    Coverage Rescissions

    • Health Care Reform prohibits health plans from retroactively rescinding a participant’s coverage absent fraud or intentional misrepresentation. The FAQs clarify that if an employer reconciles its list of eligible employees on a monthly basis, it may retroactively terminate coverage back to the date of initial eligibility without violating this rule. Similarly, plans may retroactively terminate an ex-spouse’s coverage in the event of a divorce where the plan is not notified in advance.