Health Reform WK-EDGE ACA regulation amendments finalized to help group health plans and insurance coverage retain grandfather status
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Friday, December 18, 2020

ACA regulation amendments finalized to help group health plans and insurance coverage retain grandfather status

By Elena Eyber, J.D.

HHS issued final rules regarding grandfathered group health plans and insurance coverage that amend current rules to provide greater flexibility for grandfathered health plans to make changes to fixed-amount cost-sharing requirements without causing a loss of grandfathered status.

HHS, the Department of the Treasury, and the Department of Labor (the Departments) finalized two proposed amendments to the regulations governing grandfathered group health plans and grandfathered group health insurance coverage to help those plans retain their status in response to the 2017 Executive Order. These regulations are effective January 14, 2021and applicable June 15, 2021 (Final rule, 85 FR 81097, December 15, 2020).

Background. Section 1251 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively, the ACA), allows for certain group health plans and health insurance coverage in existence when the ACA was enacted on March 23, 2010 to be subject only to certain provisions of the legislation. These plans can retain their grandfathered status by adhering to a set of rules that were issued in 2015 by the Departments (80 FR 72192, November 18, 2015).

Two of the rules provided that the status would be lost if: (1) there was "[a]ny increase in a fixed-amount cost-sharing requirement (other than a copayment) (such as a deductible or out-of-pocket maximum) that exceeds certain thresholds; or (2) "[a] decrease in contribution rate by an employer or employee organization toward the cost of coverage by more than five percentage points below the contribution rate for the coverage period that includes March 23, 2010." Moreover, the 2015 rules provided different thresholds that would trigger loss of the status dependent on medical inflation, which was defined by the Department of Labor.

2017 Executive Order. In January 2017, Executive Order 13765, entitled "Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal" was issued, with the objective to reduce "unwarranted economic and regulatory burdens of the [ACA]" (82 FR 8351, January 24, 2017). Thereafter, the Departments submitted a formal "request for information" (RFI) in 2019, and after considering the feedback from stakeholders, the Departments proposed two amendments to the 2015 rules to provide more flexibility for these plans to change cost-sharing requirements without losing their grandfather status. Specifically, the proposed rules would impact certain high-deductible health plans and how "maximum percentage increase" is defined.

High deductible plans. In order to resolve the conflict between the 2015 rule on limiting cost-sharing requirements and the Internal Revenue Code (the Code) requirement that high-deductible health plans meet certain requirements, the Departments proposed adding a new paragraph to the rules allowing an increase to a fixed-amount cost-sharing requirement to the extent it is necessary to maintain its qualification under the Code without losing the grandfather status.

Amended definition. The Departments explained that the existing measure for medical inflation is appropriate but that there may be more accurate measures to represent the increase in underlying costs for these protected plans. The Departments proposed an amended definition of "maximum percentage increase" to provide an alternative standard that considers the premium adjustment percentage, in lieu of medical inflation, for healthcare cost changes over time.

Final rules. After consideration of the comments received, the Departments issued final rules that adopt the proposed amendments without substantive change. In the Departments’ view, these amendments are appropriate because they will enable these plans to continue offering affordable coverage while also enhancing their ability to respond to rising healthcare costs. In some cases, the amendments would also ensure that the plans are able to comply with minimum cost-sharing requirements for high deductible health plans so enrolled individuals are eligible to contribute to health savings accounts. The final rules are effective 30 days after publication, which would be January 14, 2021. However, due to COVID-19 pandemic, the Departments are including an applicability date which will make the final rules applicable to grandfathered group health plans and grandfathered group health insurance coverage beginning on June 15, 2021.

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