When the Affordable Care Act (ACA) went into effect in 2010, health and welfare plans had the option to maintain grandfathered status, making plans exempt from some ACA requirements. To retain grandfathering, plans have had to limit certain benefit plan design and other changes.
Employee Benefits Survey, a recent International Foundation report found that nearly 29% of responding organizations had grandfathered health plans. Just over half (51%) of responding multiemployer plans reported retention of grandfathered status.
After more than a decade of limiting benefit changes, some plan sponsors may wonder whether retaining grandfathered status is still beneficial.
In their article “Is Retaining Grandfathered Status Still Worth It?” in the August issue of Benefits Magazine, Stacie M. Kalmer and Gregory A. Storm explain what changes can be made to a health plan without jeopardizing grandfathered status and discuss the factors plan sponsors should consider when evaluating whether to retain grandfathered status. Kalmer and Storm are attorneys and shareholders in at Reinhart Boerner Van Deuren s.c. in Milwaukee, Wisconsin.
Following is a list of six changes that plans cannot make in order to remain grandfathered.
1. Eliminating all or substantially all benefits to diagnose or treat a particular condition.
For example, a plan would cease to be grandfathered if it eliminated all coverage for cystic fibrosis, even though very few participants may be affected, because the plan now provides no coverage for the particular condition.
2. Increasing the coinsurance amount.
This applies across the benefit package, so if a plan increases the coinsurance amount on one service, the plan will cease to be grandfathered, even if the plan maintains all other cost sharing.
3. Increasing the deductible or out-of-pocket maximum in excess of the maximum percentage increase.
Recent regulations provide a special rule for grandfathered high-deductible health plans (HDHPs), which by rule must have a deductible no less than a statutorily defined amount.
4. Increasing the copayment in excess of the maximum percentage increase or, if greater, $5 plus medical inflation.
For changes effective before June 15, 2021, the maximum percentage increase is medical inflation plus 15%. After June 15, 2021, the maximum percentage increase is the greater of medical inflation plus 15% or the premium adjustment percentage minus one plus 15%.
5. Decreasing the employer’s contribution rate by more than 5%.
Plans that base employer contribution rates on a formula (e.g., 80% of the cost of coverage) will lose grandfathered status if the employer contribution rate decreases by more than 5% from the rate in effect on March 23, 2010 (e.g., a reduction to 70% of the cost of coverage).
6. Adding or decreasing an overall annual or lifetime dollar limit.
Generally, ACA prohibits plans from imposing annual or dollar limits on essential health benefits.
Is Maintaining Grandfathered Status Still Worth It?
When evaluating whether it’s still beneficial to remain grandfathered, Kalmer and Storm suggest that plan sponsors consider whether savings resulting from benefit changes offset any increased costs of compliance with ACA requirements for nongrandfathered plans.
The ACA requirement to provide full coverage of preventive services as well as the limits on out-of-pocket maximums are the main items expected to increase costs.
However, Kalmer and Storm write that many plans already cover most, if not all, ACA-designated preventive services at 100%. Depending on the plan design, the ACA preventive care rules may not actually cause much additional cost.
ACA out-of-pocket limits, however, have the potential to be large cost drivers, the authors explain, even though many plans have limits that are below the ACA nongrandfathered plan maximums of $8,550 for individual coverage and $17,100 for family coverage. This is because copays must count toward the out-of-pocket maximums in addition to coinsurance, and many plans have historically excluded copays from the calculation. Adding in copays, particularly those for prescription drugs, has the potential to significantly increase costs.
Complying with all of the ACA requirements also may increase a plan’s operational activities and corresponding costs. For example, nongrandfathered plans would need to add enhanced claims-and-appeals procedures and external review requirements, the authors explain.
Kalmer and Storm conclude, “All told, plan sponsors may decide that savings associated with the difficult decisions to change benefits outweigh the added compliance requirements of losing grandfathered status. Considering the impact of operational changes and increased compliance costs are the critical components of any such review.”
[Learn More: Foundation members can stay on top of ACA with ACA University]
Kathy Bergstrom, CEBS
Senior Editor, Publications at the International Foundation of Employee Benefit Plans
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