Under the Patient Protection and Affordable Care Act, not all rules are equal. Some requirements apply to all plans, but others don't apply to a particular plan if that plan qualifies for - and then maintains - "grandfather" status. The PPACA statute itself provides few specifics on how this is supposed to work, leaving it up to regulators at the Departments of Treasury and Health and Human Services to spell out the details. In response, regulators have issued two sets of guidance.
The first, and most substantive, came in June, in the form of interim final regulations. While these regulations provided much-needed specifics about what grandfathering under PPACA means to plan sponsors, the standards they set were higher than many had expected.
Then, just last month, the agencies issued an amendment to the June regulations allowing insured plans to keep their grandfathered status even if they change carriers - a small but welcome expansion of the June rules. More modifications may be issued in the future.
The decision to elect grandfather status isn't simple. It consists of numerous "moving parts," strict standards, and risks and rewards that remain unclear. In other words, it offers an opportunity for benefit advisers to help their clients make the right strategic decision on whether to choose grandfather status or not.
Let's take a look at a few of the questions employers are asking their advisers.
Does grandfather status matter?
Grandfathered plans are exempt from some PPACA requirements, but not all of them. Grandfathered plans do not have to comply with the law's mandates regarding nondiscrimination testing, claims appeals and external review, first-dollar preventive care, coverage for emergency services, and choice of primary care provider and access to an OB/GYN physician. In addition, the requirement to cover adult children up to age 26 will not apply until 2014 if the child is eligible for other employer-provided coverage.
However, grandfathered plans must follow all of the mandates that apply to plan years beginning on or after Sept. 23 (that is, annual and lifetime limits, pre-existing conditions for enrollees younger than age 19, dependent coverage and recissions) and the prohibition on reimbursement for OTC drugs that takes effect Jan. 1. 2011, as well as the "Cadillac tax" and other mandates that take effect on Jan. 1, 2014.
Which plans/coverages qualify?
First of all, HIPAA-excepted benefits like standalone dental and vision plans, as well as retiree medical plans, are not subject to PPACA. Beyond that, both insured and self-insured plans in existence on March 23, 2010, PPACA's enactment date, are grandfathered. Plans established after that date do not qualify.
According to the June interim final rules, grandfather status is determined on a "benefit package" basis - a term that is not defined, but seems to mean each separate option under which an individual can elect coverage. If one option loses its grandfather status (an HMO option, for example), the status of other options under the plan (a POS plan, for example) won't be affected, even if they are all part of the same ERISA plan.
What will cause a plan to lose its grandfather status?
A plan will lose its grandfather status if it:
* eliminates substantially all benefits to diagnose or treat particular conditions;
* increases a percentage-based cost sharing requirement (e.g., coinsurance) by any amount above the level on March 23, 2010;
* increases fixed amount cost sharing requirements other than copayments (e.g., deductibles or out-of-pocket maximums) by more than the sum of the medical inflation rate (measured from March 23, 2010) plus 15 percentage points;
* increases copayments by more than either the medical inflation rate (measured from March 23, 2010) plus 15 percentage points, or $5 increased by the medical inflation rate (measured from March 23, 2010), whichever is greater;
* reduces employer contributions by more than 5 percentage points below the employer contribution rate on March 23, 2010; or
* reduces or adds certain new annual or lifetime limits on the dollar value of benefits.
Where's the 'wiggle room'?
There are numerous changes that will not cause a plan to lose its grandfather status:
* switching carriers, as long as the new coverage doesn't violate any of the other rules for maintaining grandfather status (this is the Nov. 15 amendment to the June regulations)
* changes made after March 23, 2010, PPACA's enactment date, pursuant to a legally binding contract in effect on that date
* changes to increase benefits, voluntarily adopt PPACA requirements, or to conform with legal changes
In addition, the preamble to the June interim final regulations gives regulators some leeway in applying a standard of good-faith efforts to comply with PPACA if a plan's changes exceed the required standards by a minimal amount.
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