2011 has been a big year for grandfathered and non-grandfathered group health plans alike. A number of significant changes mandated by the Affordable Care Act (“ACA”) took effect for both types of plans. Now, 2014 looms as the next big milestone in health care reform. But losing track of the grandfathering rules is a trap for the unwary. While there are no major health care reform changes taking effect in 2012, sponsors of grandfathered plans should revisit the rules governing grandfathered status to ensure that they do not inadvertently lose that status in 2012.
As we explained in our June 2010 article, there are several ways in which a plan can lose grandfathered status. A key point as we await the 2014 changes 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 over time will accumulate, and each year it may be harder for a plan to preserve its grandfathered status.
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), it may reduce its contribution rate by only two additional percentage points in 2012 if it wants to preserve the plan’s grandfathered status.
Sponsors should also keep in mind 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.)
Plan sponsors should carefully consider the ongoing nature of the grandfathering rules when setting contribution rates and making plan design decisions for 2012.