Spencer Fane LLP Logo

Grandfathered Plans

In the weeks and months leading up to the enactment of the Affordable Care Act, one of the oft-repeated “campaign promises” made by promoters of the legislation was, “If you like your current health care coverage, you can keep it.” In keeping with the spirit of that promise, the Act includes provisions that exempt so-called “grandfathered” plans from some, but not all, of the benefit mandates in the Act. Unfortunately, the Act leaves many questions unanswered with respect to the application of these grandfather rules.

WHICH PLANS ARE GRANDFATHERED?

A grandfathered plan is any group health plan or health insurance coverage that was in existence on March 23, 2010, the date of enactment of the Act. It can be either fully insured or self-funded. The Act makes clear that adding new employees or enrolling additional dependents will not cause a plan to lose its grandfathered status. Because the Act refers only to new employees, however, some commentators have questioned whether existing employees — who might have previously opted out of the plan — can be allowed to enroll without undermining a plan’s grandfathered status. Although further guidance on this point would be welcome, it seems unlikely that simply enrolling existing employees will have this result.

What is even less clear is whether, and to what extent, changes in the plan’s design, insurance carrier, or eligibility rules will cause a plan to lose its grandfathered status. Some practitioners have speculated that any amendment to the plan will risk its grandfathered status. We think that such an interpretation is unlikely, because it would be inconsistent with the Act’s intent. However, further guidance is needed as to whether more significant plan changes, such as might occur in the context of a corporate merger or acquisition, will cause a plan to lose its grandfathered status. Until such guidance is issued, plan sponsors should tread carefully in this area.

MANDATES APPLICABLE TO ALL PLANS

Even grandfathered plans must comply with the following benefit mandates, effective as of the first plan year beginning on or after September 23, 2010 (i.e., January 1, 2011, for calendar-year plans):

  • A prohibition on lifetime limits for “essential” benefits; 
  • A prohibition on rescissions of coverage, except in the case of fraud or misrepresentation; 
  • Restrictions on “unreasonable” annual limits on “essential” benefits; 
  • The elimination of pre-existing condition exclusions for dependents under age 19; and 
  • Required coverage of dependent children to their 26th birthday (regardless of marital status), unless they have access to other employer coverage.

All employer plans (including grandfathered plans) must also comply with the following mandates, though not until the first plan year beginning on or after January 1, 2014:

  • The elimination of all pre-existing condition exclusions; 
  • The elimination of all annual limits on “essential” benefits;
  • Required coverage of dependent children to their 26th birthday (regardless of marital status), even if they have access to other employer coverage; 
  • A prohibition on excessive waiting periods (no more than 90 days); and 
  • “Automatic enrollment” of full-time employees (for employers with 200 or more full-time employees).

MANDATES APPLICABLE ONLY TO NONGRANDFATHERED PLANS

In addition to the requirements noted above, a plan established after March 23, 2010 (or a previously-established plan that loses its grandfathered plan status), must comply with the following mandates:

  • Required coverage for emergency services at in-network levels; 
  • A prohibition on restrictions regarding designation of primary care providers; 
  • A prohibition on required referrals for OB/GYN services;
  • Required first-dollar coverage for certain preventive services (immunizations and screenings), subject to no deductible; 
  • Enhanced claim appeal procedures, including implementation of an external appeals process; 
  • Required coverage of routine expenses for clinical trials; and 
  • A prohibition on discrimination in favor of highly compensated individuals in fully insured plans (the same prohibition to which self-funded plans are already subject).

COLLECTIVELY BARGAINED PLANS

The Act contains a special effective-date rule for collectively bargained plans. For health insurance coverage maintained pursuant to one or more collective bargaining agreements ratified before March 23, 2010, none of the mandates listed above will apply until the date on which the last of those collective bargaining agreements terminates. The Act states that any voluntary amendments made pursuant to collective bargaining to comply with some or all of the Act’s requirements before the expiration of the last collective bargaining agreement will not cause the plan to lose its grandfathered status.

Because the provision of the Act refers only to “health insurance coverage,” a literal reading of the statute would suggest that the delayed effective date does not apply to self-funded plans. Additionally, some have speculated that, once the last collective bargaining agreement expires, a collectively bargained plan will lose its grandfathered status entirely.

Both of these interpretations would appear to be inconsistent with the spirit of the Act, particularly since noncollectively bargained plans are permitted to retain their grandfathered status indefinitely. More likely, upon the expiration of the last collective bargaining agreement, the “regular” grandfather rules (as described above) will then apply. Future guidance is expected to clarify these points, so stay tuned.