Gov’t amends ‘grandfather’ regulation

Public comments forced regulators to amend the grandfathered-status rule under the health law, so employers with group health plans can switch to health insurers that provide similar coverage at a lower cost without losing their grandfathered status.

Officials at the Departments of Health and Human Services, Labor, and Treasury issued yesterday an amendment to interim final rules on grandfathered health plans under the Patient Protection and Affordable Care Act.

The new amendment allows employers to provide the same level of coverage through a new health plan carrier and keep their grandfathered status. The coverage under the new insurer must not significantly increase costs, reduce benefits levels or violate other provisions within the grandfathered-status regulations.

The amendment, however, only applies to insured group health plans. A switch of health insurance carriers and change of policy in the individual market would still result in the loss of grandfathered status.

Previously, plans could lose their grandfathered status if they implemented plan designs that reduce benefits or increase costs to members. In addition, an employer group health plan was labeled non-grandfathered compliant if the employer switched from one insurance company to another. Under PPACA, self-funded plans can only change third-party administrators without giving up their grandfathered status. 

Federal regulators estimate the amendment will result in a small increase in the number of plans maintaining their grandfathered status relative to the projections made in the grandfathering rules under PPACA.

According to DOL regulators, the amendment was made in response to public comments concerned about the following:

  • Before the amendment, self-insured plans could change the company hired to handle the paperwork without losing grandfathered status as long as the benefits and costs of the plan stayed the same, while an employer that just changed insurance companies while maintaining the same benefits under their plan could not do so. Under the amendment, all employers have the flexibility to keep their grandfathered plan but change insurance company or third-party administrator.
  • If an employer has to stay with the same insurance company to keep the benefits of having a grandfathered plan, the insurance company has undue and unfair leverage in negotiating the price of coverage renewals.
  • There are circumstances where a group health plan may need to make administrative changes that don’t affect the benefits or costs of a plan.  For example, an insurer may stop offering coverage in a market.  Or a company may change hands.  In those cases, the employer can maintain grandfathered status for their employee’s plan under this amendment.

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