Select Page

grandfathered health plans

That headline might strike some as coming from The Onion because most benefits professionals assumed any plans with grandfathered status had ceased to exist. At least, it was assumed these plans were so few in number that all participants could fit in a stadium of any rookie league baseball team.

But no, the federal departments with joint responsibility for the implementation of the Affordable Care Act (ACA) – the IRS, Department of Labor and Centers for Medicare and Medicaid Services – have published a Request for Information Regarding Grandfathered Group Health Plans and Grandfathered Group Health Insurance Coverage. While further action on grandfathered plans might be welcome, it seems like any action would be of little utility given the small number of grandfathered plans that are still in existence.

Lockton comment: According to research cited in the request for information (RFI) from Kaiser Family Foundation in 2018, 20 percent of employers offered at least one grandfathered health plan. However, from our experience and that of other commentators, that is likely an optimistic view of the grandfathered plan population. If that figure is accurate, quick action on the part of the departments might stabilize the number of employer plans that retain grandfathered status. Internal Lockton data indicate less than 2 percent of all Lockton client plans remain grandfathered. Because it is not a random sample, this data is not likely to be a perfect proxy for all employer plans nationally; however, it demonstrates why we believe the survey data might be off as well.

Grandfathered plans retain some flexibility that nongrandfathered plans do not have, such as the required coverage for preventive care and out-of-pocket limits for in-network care. Therefore, those employers that sought to retain grandfathered status as long as possible and would likely welcome additional flexibility to assist in that regard.

Many employers that think they maintain grandfathered plans and report them as such, may not really have grandfathered plans. The final regulations issued by the federal agencies make it quite complex to retain grandfathered status. As compared to the plan in effect on March 23, 2010, to retain grandfathered status the plan may not do the following:

  • Eliminate or substantially eliminate benefits for a particular condition.
  • Increase cost-sharing percentages.
  • Increase copays by more than $5 or a percentage equal to medical inflation plus 15 percent, whichever is greater.
  • Raise fixed amount cost-sharing other than copays by more than medical inflation plus 15 percent.
  • Lower the employer contribution rate by more than 5 percent for any group of covered persons.
  • Add or reduce an annual limit.

In addition, the plan must maintain documentation regarding the plan design and any changes since March 23, 2010, and notify participants of its intent to be a grandfathered plan.

Since these requirements are limiting, few employers saw the utility in maintaining grandfathered status. Of those that desired grandfathered status, many may have inadvertently lost that status over the years.

Unfortunately, the RFI specifically notes that plans that have already relinquished grandfathered status will not have any opportunity to cure that. The departments stated that in their view, they did not have the authority to provide guidance for nongrandfathered plans to regain grandfathered status. To state the obvious, that will severely limit the utility of any future guidance. Nevertheless, the departments have asked for guidance to assist those plans that have managed to retain grandfathered status to continue to do so.

The departments have asked for comments regarding the following:

  • Actions they could take to assist in the preservation of grandfathered status.
  • Challenges for health plans in the maintenance of grandfathered status.
  • Primary reasons for maintenance of grandfathered status.
  • Reasons people remain enrolled in grandfathered options if other options are available.
  • Factors plan sponsors consider in the determination to remain grandfathered.
  • Typical causes for a plan to lose grandfathered status.
  • Whether the disclosure requirements provide useful information to participants.

Lockton comment: Employers that would like to retain grandfathered status have an opportunity to provide feedback to the departments. They may want to carefully think through their responses to provide the departments all the positive reasons (from the point of view of the departments) that retention of grandfathered status is a good idea. Employers that do wish to submit comments should do so following the methodology outlined in the RFI.