New Rules Provide Health Plan Guidance

June 16, 2010

Much anticipated interim final rules for “grandfathered” health plans were jointly issued by the Internal Revenue Service, the Labor Department’s Employee Benefits Security Administration, and the Office of Consumer Information and Insurance Oversight in the Department of Health and Human Resources this week.

The rules have set off a barrage of assertions and attacks on whether the new rules live up to the President’s intent that “if you like your health plan you can keep it.” In statute, grandfathered health plans were merely a notion.  Like much of the new law, members of Congress left the specifics to the bureaucracy to define.

The Patient Protection and Affordable Care Act (PPACA, P.L. No. 111-148) exempts certain health plans that were in existence on March 23, 2010 (i.e., grandfathered plans) – when the health law was enacted – from many new requirements, including benefit mandates, caps on out-of-pocket expenses, limits on age-based premiums, and other consumer protections.

NSBA and other stakeholders have largely been interested in the degree of flexibility that the grandfathered health plan rules would permit for employers to make some changes to the plans in the years to come without losing their grandfathered health plan status.  

The interim final regulations estimate that approximately 51 percent of all employer plans will lose their grandfathered status by the end of 2013. A range of estimates provided in the regulations all suggest that small employers would be hit harder than larger employers and individuals buying insurance in the individual market will have the hardest time maintaining their grandfathered status. The high-end estimates suggest that 80 percent of employer plans may lose their grandfathered status by the end of 2013.

The volatile small and non-group markets often necessitate yearly changes in response to premium fluctuations, changes in provider networks, drug formularies, employer and employee contributions, as well as other factors. Plans can maintain their grandfathered status as long as they do not significantly reduce benefits, raise co-payments or deductibles more than the rate of medical inflation plus 15 percent, switch insurers, add or tighten annual limits, or lower employer contributions by 5 or more percent.

Additionally, grandfathered plans are allowed to add new benefits or beneficiaries, make modest adjustments to existing benefits, voluntarily adopt new consumer protections, or make changes to comply with state or other federal laws.

To be sure, even grandfathered health plans do have to incorporate some new requirements this year. Plan years starting on or after September 23, 2010 must include no lifetime or annual caps on how much insurers must pay, ban coverage rescissions, no coverage exclusions for children with pre-existing conditions, and provide an extension to dependent care coverage up to the age of 26.

Losing grandfathered health status means that from 2010-2014, on top of the requirements for all health plans post-reform, health plans must provide preventive services with no cost sharing and other patient protections. By 2014, non-grandfathered plans will be subject to all the new requirements set forth in the law, including an essential minimum benefit standard. 

The interim final rules on grandfathered health plans are expected to be published in the Federal Register June 17. The public will then have 60 days to comment on the rules.

NSBA is reviewing the regulations and will be submitting comments – member input is encouraged. For more information about this rule, read HHS fact sheet and Q&A. Go to NSBA’s Health Reform Today and Tomorrow Web site for additional information on PPACA and to provide comments to NSBA.