Guidance issued on grandfathered health plans

Interim final rules interpreting the grandfathering provision of federal health care reform laws have just been published by the Department of Health and Human Services, the Department of Labor and the IRS (75 Fed Reg 34538, June 17, 2010). Under the grandfathering provision, health plans that were in existence on March 23, 2010 need not comply with many aspects of health care reform. This new guidance clarifies that grandfathered collectively bargained plans must implement the same provisions that non-union grandfathered plans must implement (dependent coverage to age 26, no rescission of coverage, restrictions on annual and lifetime limits, and the ban on preexisting condition exclusions). In addition, the following actions will cause a plan to lose its grandfathered status:

• Elimination of all, or substantially all, benefits to diagnose or treat a particular condition
• A change in insurance carriers
• Any increase in the employee’s share of coinsurance
• Any increase in deductible or out-of-pocket limit that exceeds 15 percent over medical inflation
• Any increase in copayments that exceeds the greater of: $5 increased by medical inflation or medical inflation plus 15 percent
• A decrease in employer contribution rates of more than five percent below that in effect on March 23, 2010
• The addition of an annual limit on the dollar value of benefits
• A decrease in any existing annual limit under the plan

Plans may take the following actions without endangering their grandfathered status:

• Enroll new employees and their families
• Add family members of enrolled employees
• Make changes to voluntarily comply with health reform mandates
• Make changes to comply with federal or state law
• Increase benefits
• Change the amount of premiums
• Change third party administrators

Tips: While maintaining grandfathered status is a good idea in theory, it may not be realistic for all plans and all employers because, while you may avoid certain health care reform mandates, you will also forego the opportunity to make cost-saving adjustments to your plan. Work with your health plan adviser to determine whether maintaining grandfathered status is best for your plan. If you participate in the Vigilant Group Benefits Trust, expect further communications from Vigilant in the coming months regarding the grandfathered status of your plan.