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Eliminating Benefit Option


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Employer has self-insured medical plan for the bulk of its employees. Employer also has a rich insured "executive-only" policy. Will eliminating the executive-only policy, which would cause the executives to begin to participate in the self-insured plan, make the self-insured plan lose its grandfathered status under the "anti-abuse" provision of the interim final grandfather regulations?

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My guess is that the situation you presented does not make the self-funded plan lose it's grandfather status. The fly in this ointment is the reason why the execs were transferred. If employees are transferred into a grandfathered plan, that plan does not generally lose it' grandfathered status. However, if the employees were transferred to from a "non-grandfathered" plan to a "grandfather plan", just to get them into a grandfathererd plan, then yes, it is a violation. Since this is still a moving target, this is my best guess.

Does this help?

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Thanks, it helps clarify the issue in my mind. My example was a hypothetical but the exact circumstances are bound to come up. Many employers will conclude that it is too expensive to keep these these types of executive-only plans going on a grandfathered basis because of the cost and if these plans lose grandfathered status, they will be subject to the nondiscrimination rules. Eliminating the option will have the effect of transferring the executives into the grandfathered self-insured plan, but the reason is not "just to get them into a grandfathered plan."

I'm torn between the intent of the provision, which is to serve as an anti-abuse protection and the words of the regulation, which states that transferring employees must be for a valid business reason and cost is not such a reason.

As you say, it's a moving target, and I hope the regulators provide some guidance.

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  • 2 months later...

I'm not so sure Ivena's conclusion is correct based on Treas. Reg. Section 5498-1251T(b)(2) (issued in June) and the fact that the executive-only option was eliminated (rather than individuals voluntarily choosing to change plan coverages)--assuming, that is, that the self-insured plan, if seen as an amendment to the executive-only plan, would cause the executive-only plan to lose grandfathered status (e.g., if the self-insured plan covered fewer medical conditions). In particular, see the differences between Examples 1 & 2 in -1251T©, and the difference between -1251T(b)(1) & (b)(2).

So, I'd agree with the 2nd paragraph of the last post.

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There is some debate on this issue and it's over what it means to "transfer" employees. Arguably, the rule is triggered only if an employee is transferred from the eliminated benefit option into another benefit option, and it is NOT triggered if a benefit option is terminated and the employee has a choice amongst two or more remaining options. The example in the regulations envision employees actually being transfered from one option to another. So to the extent the self funded "plan" has different coverage options, this might be a decent argument to use.

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Guest Ira Hayes

Consider a fully insured MERP where the benefits consist of reimbursement of cost-sharing incurred by executive and dependents as enrollees in employer's group health plan up to an annual maximum (on order of annual out of pocket maxima in employer's group health plan).

Carriers selling MERP are arguing that benefits are not essential, hence not subject to health care reform at all ever!!!!!!!!!!!!!!!!

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