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Health reform 'grandfathered' status clarified

Guidance sets out changes that will void exemption

Health reform 'grandfathered' status clarified

WASHINGTON—The latest batch of health care benefits guidance provided by federal regulators provides yet more answers for employers to comply with the new health care reform law.

Much of the guidance involves questions that have been raised—and not fully resolved by previous guidance—about the conditions health care plans have to meet to be “grandfathered” and thus exempt from some of the new law's requirements.

For example, prior interim regulations listed six changes which, if any one were made, would result in the forfeiture of grandfathered status. Those changes include imposing or raising coinsurance requirements, increasing a deductible by an amount that exceeds medical inflation plus 15 percentage points, and increasing employee premium contributions by more than five percentage points.

The new guidance makes clear that the six changes are the only changes that would result in a loss of grandfathered status.

This position had “been assumed, but now it is absolutely clear,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

In addition, regulators say they still are studying whether changing a plan's health insurer should result in an automatic loss of grandfathered status. Previously, regulators had said changing insurers would result in a loss of grandfathered status but they later backpedaled.

“As noted, the departments are separately considering under what circumstances otherwise grandfathered plans may change insurers without relinquishing their status as grandfathered health plans,” according to the guidance prepared in a frequently asked questions and answers and issued by the Departments of Health and Human Services, Labor and Treasury.

Detailing the circumstances of when employers can change insurers without their health care plans losing grandfathered status is guidance for which employers are waiting “with bated breath,” said Molly Iacovoni, a legal consultant with Aon Hewitt Inc. in Lincolnshire, Ill.

Another grandfathered plan-related issue clarified in the new guidance involves situations in which employers offer several types of health care plans: a preferred provider organization plan, a point-of service plan and a health maintenance organization plan.

Previous rules were not clear about whether the plans were to be considered as one employer arrangement and that if so, if a change to one of the plans would jeopardize the grandfathered status of all the plans.

In the FAQs, the agencies affirm that changes to one plan will not affect the grandfathered status of the other plans.

“It is permissible to treat the PPO, POS arrangement and HMO as separate benefit packages. Accordingly, if any benefit package ceases grandfather status, it does not affect the grandfather status of the other benefit packages,” the guidance said.

Another situation addressed in the new guidance involves employers adding new tiers of coverage to reflect the number of individuals that are in an employee's family unit and receive coverage through the employee's employer.

For example, some companies are modifying tiers of coverage in which they are moving to a multi-tier structure of employee-only coverage, employee plus one dependent, employee plus two dependents, and employee plus three or more dependents. That compares to more traditional designs, such as a dual approach, in which employers only offer two tiers of coverage: employee-only and family coverage.

In the dual and multi-tier approaches, the premium employees pay for coverage is linked to the tier they are in. In prior guidance, it was not clear how grandfathering status would be affected by changing structures.

The new guidance says as long as the employer contribution rate for a new tier is within five percentage points of the contribution rate for a prior corresponding tier, grandfather status would be maintained.

For example, if the employer previously paid 50% of the premium for family coverage, the employer would have to pay at least 45% for any new tier of coverage—other than employee-only coverage—for the tier to enjoy grandfathered status.

The guidance also makes clear that in nearly all situations, dental and vision plans are exempt from the requirements set by the health care reform law, such as a ban on lifetime dollar limits.

Dental and vision benefits are considered “excepted benefits” when they are offered under a separate policy or if employees have a right not to receive the coverage or if they elect coverage or are required to pay an additional premium, according to the guidance.

“If a plan provides its dental or vision benefits pursuant to a separate election by a participant and the plan charges even a nominal contribution towards the coverage, the dental or vision benefits would constitute excepted benefits and the market reform provisions would not apply to that coverage,” the guidance says.