Guest Article

(From the November 22, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Group Health Plans Can Change Issuers Without Losing Grandfathered Status

Those group health plans that held off entering into a new policy, certificate, or contract of insurance after the March 23, 2010 enactment of the Patient Protection and Affordable Care Act were rewarded this week with a new option that allows them to do so without losing grandfathered status - as long as the new coverage does not make any prohibited changes. Plans that jumped the gun by entering into new policies that became effective before the November 15 announcement, however, are not eligible for the new option and may not re-claim grandfathered status.

A Change in Regulations

The enforcement agencies for the Patient Protection and Affordable Care Act (PPACA) originally issued guidance that prohibited grandfathered plans from changing issuers. Interim final regulations issued in June 2010 explicitly stated that if a group health plan enters into a new policy, certificate, or contract of insurance after the PPACA enactment date, the plan would cease to be grandfathered. However, the agencies made public the fact that they were considering circumstances in which a grandfathered plan might be able to change issuers or policies and still remain grandfathered.

Public comments on the no-new-policy-or-issuer constraint apparently swayed the agencies' view of the requirement. A factsheet issued by the Department of Health and Human Services cites the three reasons it found compelling for the reversal:

The New Rule

The amendment to the interim final regulations provides that a group health plan "does not cease to be a grandfathered health plan merely because the plan (or its sponsor) enters into a new policy, certificate, or contract of insurance after March 23, 2010." However, a group health plan "that enters into a new policy, certificate, or contract of insurance after March 23, 2010 that is effective before November 15, 2010...ceases to be a grandfathered group health plan." Certain narrowly-drawn exceptions are provided to the rule that pre-November 15 changes will extinguish grandfathered status (i.e., under the delayed effective date rules that apply to collectively bargained plans, and under the transitional rules that apply to changes that were authorized before the PPACA's enactment but became effective after that date).

The new rule requires that, in order to maintain grandfathered status, the group health plan must provide - and the new health insurance issuer must require - documentation of the plan's prior coverage terms (including benefits, cost-sharing, employer contributions, and annual limits) sufficient to determine whether one of the identified changes that will cause loss of grandfathered status has occurred.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.