So few health plans remain “grandfathered” under the Affordable Care Act (ACA) that many benefits professionals may have forgotten there was once a time when most health plans dodged, at least temporarily, several key ACA-imposed benefit mandates due to their grandfathered status. Federal regulators have now proposed regulations to make it easier, for the dwindling number of employers still boasting grandfathered health plans, to retain that grandfathered status.
Grandfathered health plans are those plans that existed on March 23, 2010, and have made such modest changes (or no changes) since then that they are allowed to retain that grandfathered status. That status, in turn, allows them to avoid some of the ACA’s benefit mandates, such as requirements to cover certain preventive services without cost sharing, enhanced claims and appeals requirements, and out-of-pocket limits for in-network care.
There is always a catch though. In order to retain grandfathered status under the ACA, the plans are limited in the nature and extent of changes they are allowed to make. Specifically, as compared to the plan in effect on March 23, 2010, grandfathered plans may not make the following changes:
- Eliminate or substantially eliminate benefits for a particular condition.
- Increase any cost-sharing percentage.
- Increase copays by more than $5 or a percentage equal to medical inflation plus 15%, whichever is greater.
- Raise fixed amount cost sharing, other than copays, by more than medical inflation plus 15%.
- Lower the employer contribution rate by more than 5% for any group of covered persons.
- Impose certain limits on benefits.
Lockton comment: If a plan makes any of these changes listed above beyond the allowable limit, the plan loses its grandfathered status when the change becomes effective. The plan must come into compliance with all of the ACA requirements at the time of the change; there is no allowable grace period to make the appropriate changes.
In the age of rising health costs, maintaining grandfathered status is no simple feat. In February 2019, federal regulators solicited information from grandfathered plans to identify ways to assist the plans in maintaining their grandfathered status. The recently proposed regulations are the result of that search.
The proposed rules include two main themes. First, the proposed rules would allow grandfathered, health savings account compatible high-deductible health plans (HDHPs) to increase certain fixed cost-sharing requirements, specifically deductibles and out-of-pocket limits, to keep pace with annual IRS cost-of-living inflation adjustments to those amounts, without jeopardizing the plan’s grandfathered status.
Additionally, the proposed rules would allow grandfathered health plans to increase fixed cost-sharing requirements, including copayments, to an extent that might otherwise cause a loss of grandfathered status under existing rules. Currently the maximum permitted increase is limited to medical inflation based on the overall medical care component of the consumer price index. Regulators believe that an adjustment based on an annually announced inflation-related calculation by the Department of Health and Human Services (HHS) would be a more appropriate benchmark, and would also be easier for plans to apply.
Comments regarding the proposed rule can be submitted to federal regulators until August 14, 2020. Plan sponsors will have to wait to make any changes based on these proposed rules until the final rules are released, so stay tuned!