Grandfathered Status Amendment Allows Plans to Change Policies and Carriers

November 17, 2010

On November 15, the Departments of Treasury, Labor, and Health and Human Services jointly announced that they are amending the Interim Final Regulations on grandfathered health plan status under the Patient Protection and Affordable Care Act (PPACA). The amendment allows employers to switch insurance carriers and/or change their funding from Administrative Services Only (ASO) to fully insured without losing grandfathered status.

The original Interim Final Regulations stated that changing insurance carriers would cause an insured group health plan that was in effect on March 23, 2010 (the date PPACA became law) to lose its grandfather status. For plans wanting to maintain grandfather status, this has been an important consideration.

The Interim Final Regulations are amended as of November 17, 2010 to reflect the following changes for group health plans. These changes are not retroactive, nor do they apply to individual policies.

• Change of Insurer:If an insured plan changes insurance policies (new carrier) and the new policy is effective:
  • Prior to November 17, 2010: The plan will lose grandfathered status.
  • On or after November 17, 2010: The plan will not lose grandfathered status, provided no other changes are made to the plan that trigger loss of status (i.e., reductions in benefits or employer contribution).
• ASO to Insured: If a plan changes funding from self-insured to insured and the new policy is effective:
  • Prior to November 17, 2010:The plan will lose grandfathered status.
  • On or after November 17, 2010: The plan will not lose grandfathered status, provided no other changes are made that trigger loss of status.
• Proposed Amendment: Move the credibility adjustment from the 50th percentile to the 80th percentile. Credibility adjustments are designed to mitigate statistical variation disaggregation of risk pools into smaller cells that would trigger a payment of rebates from random variation.
  • Result: This proposed amendment failed with a 34-19 vote, with one abstention. Cigna supports a confidence interval more consistent with the recommendation from the American Academy of Actuaries (80th - 90th percentile).
• Documentation: The new health insurance carrier must obtain documentation of the prior plan’s terms from the new policyholder so the new carrier can determine whether the change in insurance policies will result in a reduction in benefits or employer contribution sufficient to trigger loss of grandfather status.There’s dual responsibility as the policyholder must also sufficiently provide the documentation to the carrier. Documentation includes:
  • Benefits
  • Individual cost-sharing
  • Employer contributions
  • Annual limits

Yet to be Clarified
The Federal government has yet to clarify whether a change in prescription drug formulary, network or funding status from insured to ASO will cause a loss in grandfathered status.

Additional Background on Grandfathered Status
For more information on grandfathered status, please see our updated fact sheet on www.InformedonReform.com.