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Grandfathered Plan under PPACA '10?

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I am advising an ER that has a health plan that has been in place since before 3/23/2010 and continuously covered EEs since. The major medical benefit is provided through a high-deductible ($10,000 per year) insurance policy that once met, provides coverage with co-pay and co-insurance responsibilities of the EEs. The health plan also includes a buy-down MERP--the ER pays for dollars $2,501-9,999 of the health expenses applied to the insurance annual deductible, yielding a net annual deductible to the EEs of $2,500 per year. The health plan does not call for the ER to pay any part of the co-pay or co-insurance responsibilities of the EEs under the insurance policy.

The ER would like to preserve the grandfathered status of the health plan, avoiding many of the new PPACA '10 requirements. In assessing the plan design for 2011, and what can be changed without jeopardizing the grandfathered status, we've discovered a quagmire that the regulations (Treas Reg § 54.9815–1251T) do not seem to address. The problem is that the TPA has been since before 3/23/2010 determining employees' claims as though the ER is responsible for paying 50% of those co-pay and co-insurance responsibilities of the EEs. Granted, the TPA has not been operating the health plan as written.

To keep the grandfathering, the regulations make clear that there can be no increase to the EE's "cost-sharing" of the co-insurance and only moderate increases in the EE's "cost-sharing" of the co-pays. If we instruct the TPA to operate the health plan as written from this point forward, are we increasing the co-insurance and co-pay obligations of the EEs and jeopardizing our grandfathered status? Or is that type of administrative correction to bring the operation in compliance with the health plan's documents allowed without compromising the grandfathered status of the health plan?

John Simmons


Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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My initial reaction was that you would be ok with the administrative correction strategy because as I read the regs they seem to focus on what the employee costs would be within the context of premiums/copays. But then I thought again. Let me play devil’s advocate. How did the employer not know about this? Personally, I would find it difficult to believe that an employer operating a benefit plan requiring self-funded dollars, and detailed reporting, did not know about this. (Assuming that this benefit design has been in effect long enough for experience to be given to them) This could lead one to believe that the employer did not make a mistake and intended to have this design all along.

Seems to me that their "mistake" defense could become difficult to prove. Now factor into that the government person(s) that may have to pass judgment. Will they be looking to make a point, or a name for themselves?

By the way, I searched but cannot find any similar cases, so I have not legal precedence to reference. Good luck, this sounds like a good case study.

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