Amendment to the Regulation on "Grandfathered" Health Plans

On November 15, 2010, the Departments of Health and Human Services, Labor and the Treasury published an amendment to the interim final regulation on grandfathered health plans, modifying one aspect of the original regulation. The grandfather regulation issued on June 17, 2010 provided that an employer group health plan could lose its grandfather status by (among other reasons) entering into a new policy, certificate or contract of insurance after March 23, 2010. The regulation originally only permitted self-insured plans to change third-party administrators without losing their grandfathered status. The recently issued Amendment, however, now allows all group health plans to change insurance carriers without losing grandfather status, as long as the coverage under the new insurer does not significantly increase costs, reduce benefit levels or otherwise violate the provisions of the grandfather rules.

Will this affect your plan?

The Amendment applies on a prospective basis only to insured group health plans. In order to continue grandfather status where your plan has changed policies or carriers, the effective date of the new policy must be on or after November 15, 2010. If your group health plan changed insurance carriers prior to November 15, 2010, it will have lost grandfather status. In such a case, your plan will not be afforded relief from this change in rules. As a result of the Amendment, your plan will no longer be forced to stay with the same insurance carrier (which, due to the original grandfather provisions, may have had undue and unfair leverage in negotiating the price of coverage renewals), and may now be able to make necessary administrative changes that don't affect the benefits or costs of the plan without losing its grandfather status. The Amendment allows you to shop around and attempt to keep costs down while ensuring individuals can keep the coverage they have. Unfortunately, this change may have come too late for some of you with non-calendar year plan years, and may have a limited impact for those of you who have already made the decision not to change carriers based on the old rules.

What steps must be taken?

If your plan enters into a new contract, policy or certificate of insurance on or after November 15, 2010, to remain grandfathered, the plan must provide the new health insurance carrier documentation of the plan terms (including benefits, cost sharing, employer contributions, and annual limits) under the prior health coverage sufficient to determine whether a change causing the loss of grandfathered status has occurred (for example, an elimination of a benefit). The carriers are required by the Amendment to collect this information. It should be noted that final regulations will likely be published in the near future which may include additional changes to the grandfather rules. We will keep you apprised of any new developments.