Under interim final regulations for the Affordable Care Act (ACA) that were issued last year, grandfathered group health plans—those in place on March 23, 2010, when the law was enacted—don’t have to comply with substantial portions of the health care reform law.
But there’s a catch: Those plans are limited in the changes they can make. Otherwise, they lose their grandfathered status. And if that happens, they’re subject to all the ACA’s requirements. (For background, see www.theHRSpecialist.com/healthlaw.)
Now the U.S. Department of Labor and the IRS have issued guidance on exactly what health-plan changes can occur without threatening grandfathered status, as well as changes that will send a plan back to square one. (Read the full government guidance at www.dol.gov/ebsa/faqs/faq-aca6.html.)
To keep grandfathered status
First, what employers can do. Generally, the feds are giving grandfathered plans a little more wiggle room than the original regs suggested.
According to the federal agencies, plans lose their grandfathered status if employees are transferred from one grandfathered plan into another without a bona fide business reason for the shift. What’s a bona fide reason?
- Benefits packages are eliminated because the insurance issuer is leaving the market or no longer offers the plan. That can happen, for example, if the number of enrolled employees falls below the carrier’s minimum participation requirements.
- Low or declining employee participation in benefits packages makes it impractical for employers to continue to offer those packages.
- A union agreement eliminates a benefits package from a multiemployer plan.
- Benefits packages are eliminated for any reason and multiple packages covering a significant portion of other employees are otherwise available to the employees who are being transferred.
Losing grandfathered status
On the other hand, a health plan can lose grandfathered status if:
- The employer’s contribution decreases by more than 5% below the contribution rate in place on March 23, 2010.
- Employees’ co-insurance increases by any amount or percentage.
- Deductibles, out-of-pocket costs and co-pays increase significantly.
Note: According to the DOL and the IRS, plans won’t lose grandfathered status if employers contribute under a formula, instead of a percentage—provided the formula doesn’t change. That remains true even if employees must contribute more because the total cost of coverage increases.
Example: Under Mega Corp.’s retiree plan, it contributes $300 per year, multiplied by retirees’ years of service, capped at $10,000. If the cost of coverage increases, it stands to reason that retirees would have to pay more out of pocket to maintain coverage—something that would normally result in loss of grandfathered status. In fact, the plan would lose its status if Mega Corp.’s contribution decreased by more than 5%.
But if the formula doesn’t change—in this case, $300 times a retiree’s years of service—the employer isn’t considered to have reduced its contribution rate, regardless of the increase in the total cost of coverage.
Like what you've read? ...Republish it and share great business tips!
Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...
We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.
The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.
" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/14790/how-to-keep-health-plan-grandfathered-status "