As the 2013 annual enrollment period approaches for many calendar-year group health plans, sponsors of “grandfathered” health plans – those that were already in existence when the Affordable Care Act (“ACA”) was enacted in March 2010 and that have not undergone significant changes since then – will once again have to assess whether the plan can and/or should try to retain such status for 2013.
As we explained in our February 2012 article, both grandfathered and non-grandfathered plans must comply with the new summary of benefits and coverage (“SBC”) rules that take effect in 2013. However, a grandfathered plan need not comply with the first-dollar preventive care requirements of the ACA, including the recent extension of the guidelines for women’s preventive care benefits to include contraceptive coverage and certain breast-feeding equipment. See our August 2011 article for more information on these requirements.
As we explained in our June 2010 article, there are several ways in which a plan can lose grandfathered status. The key point to remember is that all of these criteria are measured against a static point in time: March 23, 2010 (the day that the ACA was enacted). Thus, incremental changes to a plan are cumulative, making it potentially harder for a plan to preserve its grandfathered status each year.
For example, a plan will lose its grandfathered status if the rate of employer contributions to the plan (for any tier of coverage) decreases by more than five percentage points. Under this rule, the employer may not decrease the rate of its contributions by five percent each year. Instead, if the cumulative decrease in employer contributions over two or more years results in a decrease of more than five percentage points below the rate in effect on March 23, 2010, the plan will lose its grandfathered status. Thus, if an employer has already reduced its contribution rate by three percentage points in 2011 (say, from 65% to 62% of the total premium), and one additional percentage point in 2012 (to 61%) it may reduce its contribution rate by only one additional percentage point in 2013 if it wants to preserve the plan’s grandfathered status.
Similarly, a plan will ordinarily lose its grandfathered status if it increases its copayment by more than $5 (plus the medical inflation rate since March 23, 2010). Thus, a copayment increase of $4 effective on January 1, 2012 – followed by a second $4 increase effective January 1, 2013 – would trigger a loss of grandfathered status on January 1, 2013.
Sponsors should also remember that the regulations condition a plan’s grandfathered status on the sponsor taking the following affirmative steps:
- Including “in any plan materials provided to a participant or beneficiary that describe the benefits provided under the plan” (such as a summary plan description) a statement that the plan believes it is a grandfathered health plan; and
- Maintaining records that document the terms of the plan as in effect on March 23, 2010, along with any other documents necessary to verify, explain, or clarify the plan’s status as a grandfathered health plan. (Such records must then be made available for examination upon request by a participant, beneficiary, or government agency.)