Pension & Benefits News Final regulations allow ACA grandfathered plans to make some cost-sharing changes without losing status
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Wednesday, January 6, 2021

Final regulations allow ACA grandfathered plans to make some cost-sharing changes without losing status

By Pension and Benefits Editorial Staff

The Departments of the Treasury, Labor, and Health and Human Services have jointly issued final regulations amending the grandfathered plan status rules under the Affordable Care Act (ACA). The final rules finalize the proposed rules without substantive change. The changes apply to grandfathered group health plans and grandfathered group health insurance coverage beginning on June 15, 2021.

Grandfathered plans. Grandfathered health plans are subject to certain, but not all, provisions of ACA for as long as they maintain their status as grandfathered health plans. For example, grandfathered health plans are subject neither to the requirement to cover certain preventive services without cost sharing, nor to the annual limitation on cost sharing. If a plan were to lose its grandfather status, it would be required to comply with both provisions, in addition to several other requirements.

There are six types of changes (measured from March 23, 2010) that will cause a group health plan or health insurance coverage to cease to be grandfathered: (1) elimination of all or substantially all benefits to diagnose or treat a particular condition; (2) any increase in a percentage cost-sharing requirement (such as coinsurance); (3) any 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; (4) any increase in a fixed-amount copayment that exceeds certain thresholds; (5) any 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; or (6) the imposition of annual limits on the dollar value of all benefits for group health plans and insurance coverage that did not impose such a limit prior to March 23, 2010.

Final regulations. The changes are designed to provide greater flexibility for grandfathered health plans to make changes to certain types of cost-sharing requirements without causing a loss of grandfathered status. The changes do not, however, include a route to allow grandfathered plans to regain lost their status. They also did not change the rules for the percentage requirements since that is obviously a change. Note that the changes apply only to group health plans and coverage, not individual plans.

The Departments focused on changes in fixed dollar amounts because it is not obvious there is one way to account for inflation. They also addressed the concern over high deductible health plans that have to comply with Code Sec. 223 inflation adjustments. Although it has not been a problem, it is reasonable that plans have assurance it will not be in the future.

With respect to fixed-amount cost-sharing requirements other than copayments, a plan or coverage ceases to be a grandfathered health plan if there is an increase, since March 23, 2010, that is greater than the maximum percentage increase. For fixed-amount copayments, a plan or coverage ceases to be a grandfathered health plan if there is an increase, since March 23, 2010, in the copayment that exceeds the greater of (1) the maximum percentage increase or (2) five dollars increased by medical inflation.

Maximum percentage increase. The existing rules define the maximum percentage increase as medical inflation (from March 23, 2010) plus 15 percentage points. For this purpose, medical inflation is defined by reference to the overall medical care component of the Consumer Price Index for All Urban Consumers, unadjusted (CPI-U), published by the Department of Labor using the 1982–1984 base of 100.

The final rules include an amended definition of "maximum percentage increase" that provides an alternative standard that relies on the premium adjustment percentage rather than medical inflation (which continues to be defined, for purposes of these rules, as the overall medical care component of the Consumer Price Index for All Urban Consumers, unadjusted), to account for changes in healthcare costs over time.

This alternative standard does not supplant the current standard. Rather, it is available to the extent it yields a greater result than the current standard, and it applies only with respect to increases in fixed-amount cost-sharing requirements that are made effective on or after the effective date of the final rule.

High deductible health plans (HDHP). The final rules specify that grandfathered group health plans and grandfathered group health insurance coverage that are HDHPs may make changes to fixed-amount cost-sharing requirements that would otherwise cause a loss of grandfather status without causing a loss of grandfather status, but only to the extent those changes are necessary to comply with the requirements for HDHPs under Code Sec. 223(c)(2). Thus, increases with respect to such a plan or coverage that would otherwise cause a loss of grandfather status and that exceed the amount necessary to satisfy the minimum annual deductible requirement under Code Sec. 223(c)(2)(A) would still cause a loss of grandfather status.

The regulations include the following example. A group health plan that is a grandfathered health plan and also a high deductible health plan had a $2,400 deductible for family coverage on March 23, 2010. The plan is subsequently amended after the effective date of final rule to increase the deductible limit by the amount necessary to comply with the requirements to qualify as a high deductible health plan, but that exceeds the maximum percentage increase. The increase in the deductible at that time does not cause the plan to cease to be a grandfathered health plan because the increase was necessary for the plan to continue to satisfy the definition of a high deductible health plan.

SOURCE: 85 FR 81097, December 15, 2020.

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