Employers may want to carefully review their fully-insured group health insurance plans given the changes wrought by The Patient Protection and Affordable Care Act (PPACA).
A fully insured health insurance plan sold on or after September 23, 2010 is not “grandfathered” under the current grandfather regulations, and is immediately subject to IRS Code Sec. 105(h) rules, which prohibit employers from discriminating in favor of highly compensated individuals, relative to other employees in eligibility and benefits under a group health plan. Non-grandfathered class/carve-out plans that only cover a class of employees, or cover such a class at a higher benefit level than another class, are prohibited under these new rules, and are subject to a $100 per day per failure penalty.
Plans sold after March 23, 2010 and before September 23, 2010, are also non-grandfathered, and are subject to the new 105(h) rules on the first day of its next plan year.
Lastly, a fully insured plan that was grandfathered on March 23, 2010, and subsequently loses its grandfathered status due to changes in the plan will be subject to 105(h) rules when the grandfathered status is lost, and may not be in compliance with the 105(h) rules.
So, what is a grandfathered plan? I thought you’d never ask! If coverage was provided by a group health plan in which an individual was enrolled on March 23, 2010, the coverage is grandfathered. To keep grandfathered status, the health plan must continuously enroll someone from March 23, 2010, onward (the plan must continuously cover someone since March 23, 2010).
There are a number of rules which affect a grandfathered health plans status; any one of these rules serve as a means to lose grandfathered status. Plan modifications to grandfathered health plans could cause loss of status; these modifications could include benefit eliminations, an increase in coinsurance percentage, increased cost-sharing, increased deductibles, increased copayments, a decrease in an employers’ contribution by more than 5%, or any change in overall annual dollar limits.
(While it was originally ruled that changing a group health plan carrier would trigger loss-of-grandfathered status, federal regulators recently ruled that an employer may change carriers if the new plan is similar enough to the old plan to qualify for grandfathered status.)
A fully insured group health plan with a class/carve-out must maintain it’s grandfathered status or be in violation of the nondiscrimination rules under 105(h). For some employers, this is critical. Luckily, grandfathered health plans will be able to make routine changes to their policies and maintain their status. For instance, making modest adjustments to existing benefits, adopting new consumer protections under the new law, or making changes to comply with state and federal laws are allowed. Premium changes are not taken into account when determining whether or not a plan is grandfathered.
Caution: To maintain status as a grandfathered health plan, a plan or health insurance coverage must include a statement, in ANY plan materials provided to a participant, subscriber, or beneficiary describing the benefits provided under the plan or health insurance coverage, that the plan or coverage believes it is a grandfathered plan within the meaning of Section 1251, PPACA. Model language satisfying this disclosure requirement is available on-line. Employers need to be certain this information is distributed, or risk loss of their grandfathered status due to non-disclosure. Don’t assume that your health insurer is doing this!
Lastly, don’t forget that these new rules are largely intended to eliminate any discrimination in insured benefits. Given the new $100 per day, per participant excise tax penalty for nondiscrimination violations, a thorough review of employment agreements, offer letters and other documents providing for extended health coverage, as well as long term care insurance, for key employees or anyone highly compensated under Section 105(h), is highly recommended.