EBSA Seeks to Amend Grandfathered Health Regulations

pencil erasing2.JPGThe Departments of Treasury, Labor and Health and Human Services plan to publish an amendment (pdf) to the interim final regulations governing “grandfathered” health plans. The “grandfather” regulations specify the conditions certain health insurance plans must meet in order to be exempt from having to comply with some of the new requirements imposed by the Affordable Care Act. The amendment would allow certain changes in a group health plan’s policies, certificates, or contracts of insurance without loss of grandfathered status. Specifically, the change provides that a group health plan does not forfeit its grandfathered health plan status merely because the plan (or its sponsor) enters into a new policy, certificate, or contract of insurance after March 23, 2010, provided that the plan continues to comply with the remaining standards in the interim regulations.

According to the agency, many commenters raised concerns about the provision that made a group health plan relinquish its grandfathered status if it changed issuers or policies. These concerns include the following:

  1. The provision treats insured group health plans, which cannot change issuers or policies without ceasing to be a grandfathered health plan, differently from self-insured group health plans, which can change third-party administrators (TPAs) without relinquishing grandfather status.
  2. Many questioned the circumstances in which a group health plan changes its issuer involuntarily, such as when the issuer withdraws from the market, yet the plan sponsor wants to maintain its grandfathered status with a new issuer.
  3. Some claimed that the provision would “unnecessarily restrict the ability of issuers to reissue policies to current plan sponsors for administrative reasons unrelated to any change in the underlying terms of the health insurance coverage (for example, to transition the policy to a subsidiary of the original issuer or to consolidate a policy with its various riders or amendments) without loss of grandfather status.”
  4. Other commenters claimed that this provision gave issuers “undue and unfair leverage” in negotiating the price of coverage renewals with the sponsors of grandfathered health plans, which, the commenters argued, interferes with health care cost containment that traditionally stems from price competition.

After considering such comments, the federal agencies responsible for implementing the Affordable Care Act decided that “it is reasonable to construe the statutory term ‘group health plan’ to apply the grandfather provisions uniformly to both self-insured and insured group health plans (and, consequently, to health insurance coverage offered in connection with a group health plan).” When coverage is instead provided through the individual market, the agency explains, a change in issuer would still be a change in the health insurance coverage in which the individual was enrolled on March 23, 2010, and thus the new individual policy, certificate, or contract of insurance would not be a grandfathered health plan.

The amendment applies to changes to group health insurance coverage that are effective on or after November 17, 2010 and does not apply retroactively to changes to group health insurance coverage that were effective before this date. Further, the date the new coverage becomes effective is the operative date for the application of the amendment, not the date a contract for a new policy, certificate or contract of insurance is entered into.

The amendment also adds a new disclosure requirement that requires group health plans that are changing health insurance coverage to provide to the succeeding health insurance issuer documentation of plan terms, including benefits, cost sharing, employer contributions, and annual limits, under the prior health insurance coverage sufficient to make a determination whether the standards of paragraph (g)(1) – which lay out the rules for determining when changes to the terms of a plan or health insurance coverage result in the loss of grandfathered status – are exceeded.

Comments on this amendment must be made within 30 days of the amendment’s publication in the Federal Register, which is scheduled for November 17, 2010. All comments must contain the identification number: RIN 1210-AB42, and may be made electronically through the federal eRulemaking portal: http://www.regulations.gov or via email to: E-OHPSCA1251amend.EBSA@dol.gov. Written comments may be sent or hand-delivered to: Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention: RIN 1210-AB42.

This entry was written by Ilyse Schuman.

Photo credit: borisyankov

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.