Guidance on Maintaining Grandfathered Status Under the ACA

Background

Group health plans that were in existence on March 23, 2010, when the ACA was enacted, may be considered “grandfathered” plans under certain conditions. Grandfathered plans have to comply with some provisions of the ACA (e.g., the requirement to extend coverage for dependent children to age 26, the ban on annual and lifetime dollar limits), but they are not required to comply with others. For example, plans that lose their grandfathered status are required to cover certain preventive services without cost sharing, provide external review of certain adverse claims decisions, and establish out-of-pocket limits that are no higher than amounts set by the federal government each year.

Grandfathered plans retain that status as long as plan design changes stay within certain fairly narrow parameters. For example, any increase in coinsurance paid by participants (even for a single benefit) triggers a loss of grandfathered status. Changes to deductibles, copayments and out-of-pocket limits are permitted on a very limited basis based on specific parameters related to medical inflation. Changes are always measured back to the plan terms that were in effect on March 23, 2010.

The final rule

The final rule provides flexibility in two ways:

1. Plan sponsors of High-Deductible Health Plans (HDHPs) paired with Health Savings Accounts (HSAs) are required to comply with minimum deductibles and maximum out-of-pocket limits set each year by the Treasury Department and the IRS. Under the final rule, these plan sponsors will be allowed to increase cost-sharing requirements to the extent necessary to maintain their status as HSA-qualified HDHPs without losing grandfathered status.
2. Plan sponsors will be able to select a different measure of medical inflation for calculating permissible increases in deductibles, copayments and out-of-pocket limits if that alternative provides greater flexibility than the measure established in the current regulations. The current regulations look to the medical care component of the Consumer Price Index for all Urban Consumers, which reflects changes in price for private insurance, self-pay patients and Medicare. The new alternative measure looks at the “premium adjustment percentage,” which reflects growth in premiums for private insurance only.

This new flexibility applies to plan changes that take effect on or after June 15, 2021.

Implications for plan sponsors

The final rule states that the number of individuals in grandfathered plans has declined each year since the ACA was enacted. Those plans that retain grandfathered status will be able to modify benefits slightly more easily due to the final rule.

Sponsors of grandfathered health plans should always review any proposed plan design change to determine whether it would impact the plan’s grandfathered status. If changes are not carefully reviewed, the plan could inadvertently lose that status and fail to comply with the additional ACA requirements applicable to non-grandfathered plans.

In addition, grandfathered plans must continue to provide the notice of grandfathered status to participants with any and all materials describing benefits under the plan.

Audits of health plan compliance by both the DOL and HHS will carefully review claims that the plan is grandfathered and challenge that status if they believe it is not appropriate. Plans that have inadvertently lost grandfathered status would face potential penalties for failing to comply with ACA rules applicable to them. Retroactive reprocessing of claims is typically part of the relief sought by the federal government.