- “Grandfathered” status exempts existing health plans from certain parts of health reform
- In its ideal form, grandfathered status meant keeping the plan you love
There was a lot of confusion over all the ways to lose grandfathered status. A recently released set of Frequently Asked Questions (FAQs) clarifies what actions health plans can take without forfeiting the grandfathered status.
Knowing the Answers
Translating legislation is often amusing. Look at part of the answer to the first question –
“…transferring employees from one grandfathered plan or benefit package (transferor plan) to another (transferee plan) will cause the transferee plan to relinquish grandfather status if amending the transferor plan to replicate the terms of the transferee plan would have caused the transferor plan to relinquish grandfather status…”
Let’s see if we can translate these into a common language.
Question #1 – Can an employer transfer employees from one plan into another without losing the grandfathered status?
When the government agencies issued earlier regulations, it appeared that in most circumstances, changing the benefit package meant the employer lost grandfathered status.
The only exception was a bona fide employment-based reason.
So, what’s that? The FAQs offer a few examples.
The benefits package is no longer available – Sometimes insurance companies stop offering a certain product or they get out of the market altogether – for example, the company stops selling to small group employers.
Some benefit packages require that a minimum number of employees participate in the plan. If employees drop out and participation falls below that amount, the plan is no longer available.
It is impractical to offer the benefits package – Even if the plan does not have a minimum participation rate, if there are so few employees that it does not make sense for the employer to offer it, it might be considered a “bona fide employment-based reason.”
Collective bargaining eliminates the benefit package – This applies to multiemployer plans that have a process between employers and employee representatives for legally negotiating benefits.
It’s eliminated for any reason - provided there are multiple benefit packages available that cover a significant number of the rest of the employees.
Question #2 – What happens if a drug changes classification so the benefit changes? Would the plan lose its grandfathered status?
The simple answer is, “No.”
Here is an example.
- Some plans have different copays for different types of drugs – e.g. brand name versus generic
- On some plans, employees pay more for brand drugs, unless there is no generic alternative
- Later on if a generic becomes available and the employee continues to use the brand name drug, the employee pays a higher cost
In this case, the plan could still keep its grandfathered status even though the benefit changed on that specific drug.
The last four questions and answers apply to very specific health plan scenarios so we won’t go into much detail.
Question #3 addresses a previous set of FAQs and applies to a type of plan known as value-based insurance design (VBID). If your plan is not a VBID, skip over this question.
An oversimplified definition of VBID is –
A plan that has a higher benefit for health care services that have a greater outcome and long-term benefit
It is relatively new, so chances are this question will not apply to your benefits plan.
Questions #4 and #5 deal with amendments to a health plan. In a nutshell, grandfathered status is lost on the effective date of an amendment, regardless of the start of the new plan year. For example, if the health plan year starts every year on January 1, but the plan amendment is effective July1, grandfathered status is lost on July 1.
Question #6 answers a question about calculating employee contributions for a plan with both active employees and retirees.
The regulations state that if grandfathered plans decrease the percent of premiums the employer pays by more than 5 percentage points, they lose their grandfathered status.
The question and answer that brings the most joy to the heart of employers is Question #1. The examples provided in the FAQs response represent areas outside the control of the employer sponsoring the health plan. It is good news that grandfathered status is not lost under those circumstances.
Notice of Disclaimer –Cathy Miller is not an attorney and cannot provide legal advice. The information provided is for your general background only, and is not intended to constitute legal advice as to your specific circumstances. We recommend you review legislation with legal counsel.
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