Health Care Reform: Grandfathered Plans

EXECUTIVE SUMMARY

In March 2010, President Obama signed sweeping health care legislation into law. The health care reform law contains many provisions that will affect your business and your employees. The extent of the impact will depend, in part, on whether you maintained a health care plan on March 23, 2010, the date the primary legislation was enacted. If your company sponsored a plan on that date, it is considered a “grandfathered” plan.

- Grandfathered plans are group health plans or health insurance coverage in which an individual was enrolled on March 23, 2010, the date of enactment of the legislation.

- These plans can avoid many of the new health care reform provisions.

- The “grandfathered” protections still apply even if family members join current coverage or new employees join a current plan.

This Commonwealth Brown & Brown Legislative Brief provides information to help you understand what makes a plan “grandfathered.” It also describes the provisions that do not apply to grandfathered plans, as well as major provisions that do apply. Please read below for more information.

HOW HEALTH CARE REFORM AFFECTS GRANDFATHERED PLANS

Grandfathered Plans

The new health care reform law provides that certain provisions of the law will not apply to group health plans or health insurance coverage in which an individual was enrolled on March 23, 2010, the date the legislation was passed. The legislation refers to these plans as “grandfathered health plans.” The law states that a grandfathered plan will retain its grandfathered status even if the covered individual renews the coverage after March 23, 2010, family members are allowed to enroll or new employees (and their families) are allowed to enroll.

Be aware that it is unclear what could take a health care plan out of the “grandfathered” status. Significant change to the plan design could do so and therefore, employers need to be cautious in redesigning any current plans. We are waiting for further guidance on what will and will not have an impact on a plan’s grandfathered status. We will continue to keep you updated as the Department of Labor, IRS and Department of Health and Human Services provide guidance.

Health Care Reform Rules that Do Not Apply to Grandfathered Plans

The grandfathering provision of the health care reform law specifically exempts grandfathered plans from certain requirements of the law. Grandfathered health plans are exempt from the following requirements:

• Coverage of Preventive Health Services. Effective for plan years beginning on or after September 23, 2010, group health plans and health insurance issuers offering group or individual health insurance coverage must provide coverage for certain preventive health services without imposing cost-sharing requirements.

• Patient Protections. Effective for plan years beginning on or after September 23, 2010, the health care reform law puts the following rules in place for patients:

o Group health plans and health insurance issuers offering group or individual health insurance coverage that require designation of a participating primary care provider must permit each participant, beneficiary and enrollee to designate any available participating primary care provider (including a pediatrician for children).

o Group health plans and health insurance issuers offering group or individual health insurance coverage that provide emergency services may not impose preauthorization or increased cost-sharing for emergency services (in or out of network).

o Group health plans and health insurance issuers offering group or individual health insurance coverage that provide obstetrical/gynecological care and require a designation of a participating primary care provider may not require preauthorization or referral for obstetrical/gynecological care.

• Nondiscrimination Rules for Fully-Insured Plans. Effective for plan years beginning on or after September 23, 2010, fully insured plans must satisfy the requirements of Internal Revenue Code section 105(h)(2). That section provides that a plan may not discriminate in favor of highly compensated individuals as to eligibility to participate and that the benefits provided under the plan may not discriminate in favor of participants who are highly compensated individuals.

• Quality of Care Reporting. Within two years of the date of enactment, reporting requirements will be developed for group health plans and health insurance issuers offering group or individual health insurance coverage. The reports will relate to benefit and reimbursement structures that are designed to improve health outcomes, prevent hospital readmissions, improve patient safety, reduce medical errors and implement health and wellness activities.

• New Appeals Process. Effective for plan years beginning on or after September 23, 2010, group health plans and health insurance issuers offering group or individual health insurance coverage must implement an effective appeals process for appeals of coverage determinations and claims.

• Insurance Premium Restrictions. Effective for plan years beginning on or after January 1, 2014, premiums charged for health insurance coverage in the individual or small group market may not be discriminatory and may vary only by individual or family coverage, rating area, age and tobacco use, subject to certain restrictions.

• Guaranteed Issue and Renewal of Coverage. Effective for plan years beginning on or after January 1, 2014, health insurance issuers offering health insurance coverage in the individual or group market in a state must accept every employer and individual in the state that applies for coverage and must renew or continue in force the coverage at the option of the plan sponsor or the individual.

• Nondiscrimination Based on Health Status. Effective for plan years beginning on or after January 1, 2014, group health plans and health insurance issuers offering group or individual health insurance coverage may not establish rules for eligibility or continued eligibility based on health status-related factors. Wellness programs must meet nondiscrimination requirements.

• Nondiscrimination in Health Care. Effective for plan years beginning on or after January 1, 2014, group health plans and health insurance issuers offering group or individual insurance coverage may not discriminate against any provider operating within their scope of practice. However, this provision does not require a plan to contract with any willing provider or prevent tiered networks. Plans and issuers also may not discriminate against individuals based on whether they receive subsidies or cooperate in a Fair Labor Standards Act investigation.

• Comprehensive Health Insurance Coverage. Effective for plan years beginning on or after January 1, 2014, health insurance issuers that offer health insurance coverage in the individual or small group market must provide the essential benefits package required of plans sold in the health insurance exchanges.

• Limits on Cost-Sharing. Effective for plan years beginning on or after January 1, 2014, group health plans may not impose cost-sharing or out-of-pocket costs in excess of certain limits. Out-of-pocket expenses may not exceed the amount applicable to coverage related to HSAs and deductibles may not exceed $2000 (single coverage) or $4000 (family coverage). These amounts are indexed for subsequent years.

• Coverage for Clinical Trials. Effective for plan years beginning on or after January 1, 2014, group health plans and health insurance issuers offering group or individual insurance coverage must permit certain enrollees to participate in certain clinical trials, must cover routine costs for clinical trial participants and may not discriminate against participants.

Special Effective Date for Collectively Bargained Plans

Collectively bargained multi-employer and single-employer plans in effect on March 23, 2010 are not subject to the health care reform rules described above until the termination date of the last of the collective bargaining agreement relating to the coverage. There is some debate as to whether the exemptions for grandfathered plans will continue to apply after that date. The health care reform law provides, however, that a collectively bargained plan is permitted to be amended early for some or all of the new rules. This voluntary amendment will not be treated as a termination of the collective bargaining agreement that might otherwise subject the plan to an earlier compliance deadline.

Major Health Care Reform Rules that Do Apply to Grandfathered Plans

The Health Care and Education Reconciliation Act of 2010 (the Reconciliation Bill) repealed some of the exemptions that were originally intended for grandfathered plans. Therefore, the provisions described below apply to both grandfathered and new health plans. Keep in mind that this is a description of major provisions that affect health plans, not an exhaustive list of how health care reform might affect your company.

• Extension of Dependent Coverage. Effective for plan years beginning on or after September 23, 2010, group health plans must provide coverage for adult dependent children up to age 26 if the child is not eligible to enroll in other employer-provided coverage (other than in a grandfathered plan). Effective March 30, 2010, employer-provided health insurance coverage provided to these adult children is tax-free to employees.

• Elimination of Lifetime and Annual Limits. Effective for plan years beginning on or after September 23, 2010, group health plans and health insurance issuers offering group or individual health coverage may not establish lifetime limits on the dollar value of essential benefits. Group health plans may also not establish unreasonable annual limits. In 2014, all annual limits are eliminated.

• Elimination of Pre-existing Condition Exclusions. Effective for plan years beginning on or after September 23, 2010, pre-existing condition exclusions may not be applied to enrollees under age 19. Pre-existing condition exclusions are eliminated for all enrollees in 2014.

• Limits on Rescissions. Effective for plan years beginning on or after September 23, 2010, coverage may not be rescinded, except in the case of fraud or intentional misrepresentation of material fact. Policyholders must be notified prior to cancellation.

• Limits on Waiting Periods. Effective for plan years beginning on or after January 1, 2014, group health plans and health insurance issuers offering group or individual health insurance coverage may not require a waiting period of more than 90 days.

• Summary of Benefits. Beginning 24 months after enactment of the health care reform law, insurers and plans sponsors of self-funded plans must provide a summary of benefits to participants and applicants. The law sets out specific content and format guidelines.

• Reporting Medical Loss Ratio. Effective for plan years beginning on or after September 23, 2010, health insurance issuers offering group or individual health insurance coverage must annually report the percentage of premiums spent on non-claim expenses. Beginning January 1, 2011, insurers must provide rebates if more than the applicable percentage is spent on non-claims costs.

This Commonwealth Brown & Brown Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

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