By: HUB’s EB Compliance Team
On December 15, 2020, the Departments of Treasury, Labor, and Health and Human Services (the “Departments”) released changes to the grandfathered plan rules under the Affordable Care Act (“ACA”). The rules generally make it easier for existing grandfathered group health plans to remain grandfathered; they do not allow plans that have already lost grandfathered status to regain it. However, given the near extinction of grandfathered plans, the rules are expected to have limited effect.
Background
Grandfathered plans are generally plans that were in effect when ACA was passed. They do not have to comply with some of ACA’s rules. As a condition to maintain grandfather status, the plan must disclose in plan communications that the plan is grandfathered and not subject to all of ACA’s rules. (A sample advisory notice is included with HUB’s annual open enrollment notice packet.)
Most critically necessary to maintain their grandfathered status, employers must not make certain plan changes. For example, copayments, deductibles, etc. can only be increased at the rate specified in the rules. If a plan makes a prohibited change, it loses grandfathered status. Once a plan loses grandfathered status, it must comply with all the ACA’s rules and it cannot regain its grandfathered status.
The grandfathered plan rules apply on a benefit package option basis. This means that one benefit option offered by an employer (such as an HMO option) may be grandfathered while other options offered by the same employer (such as PPO options) are not. However, for the sake of simplicity, most people refer to “grandfathered plans” rather than “grandfathered coverage options.”
New Rules
The new rules provide some additional flexibility on the changes grandfathered plans may make and still maintain their grandfathered status, but importantly, these rules do not go into effect until June 15, 2021. The delayed effective date is designed to avoid increasing the cost of coverage during the COVID-19 pandemic.
High-Deductible Health Plans (HDHPs). Starting June 15, grandfathered HDHPs may increase their fixed-amount cost-sharing without losing grandfathered status, if the increase is necessary to maintain HDHP status. As HDHP sponsors know, HDHPs are subject to a minimum deductible requirement. That minimum deductible does increase with changes in the cost of living, but uses a different inflation adjustment than the grandfathered rules use. This prevents a potential conflict if, at some point in the future, the inflation adjustment for HDHPs outpaces the inflation adjustment for grandfathered plans. This is not a current problem because the annual cost-of-living adjustment to the required minimum HDHP deductible has not yet exceeded the threshold that would cause loss of grandfathered status. Nevertheless, the new rule protects grandfathered HDHPs by enabling them to increase their cost-sharing to meet a future minimum deductible adjustment without forfeiting grandfathered status.
Alternative Inflation Adjustment. Also starting June 15, grandfathered health plans may determine certain cost-sharing increases (like copayments, deductibles, etc.) by reference to the greater of the medical CPI-U (which is the current grandfathered adjustment) or the most recently published annual premium adjustment percentage. The premium adjustment percentage is used to set the rate of increase for certain other ACA parameters, such as the out-of-pocket maximum and the ACA employer mandate penalties. The Departments expect the premium adjustment percentage to grow faster than the medical CPI-U. If that is correct, this alternative will give grandfathered plans the flexibility to increase certain cost-sharing changes at a greater rate than they currently could.
Next Steps
Employers with grandfathered plans should work with their HUB advisor and carrier or third-party administrator to determine if they can implement additional changes, starting June 15, 2021. In making any changes, employers will want to consider the usual concerns about any cost increases, such as the effects on premiums and enrollment, employees’ ability to absorb the increases, and how best to communicate the changes.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.