On November 15, 2010, the Departments of Labor, Health and Human Services, and the Treasury (collectively, the Departments) issued an Amendment to the interim final rule relating to a group health plan's status as a "grandfathered" plan under the Patient Protection and Affordable Care Act (PPACA).  The interim final rule, which was published by the Departments on June 17, 2010, provides that if an employer or employee organization enters into a new policy, certificate or contract of insurance after March 23, 2010, the policy, certificate or contract of insurance would cease to be a grandfathered plan, and thereby, lose the plan's exemption from several coverage mandates under the PPACA (although an exception applied to collectively bargained insured plans).  The Amendment to the interim final rule reverses this position and permits an insured group health plan to change health insurance coverage without ceasing to be a grandfathered plan.  The change provides parity with self-insured group health plans, which are permitted under the interim final rule to change third-party administrators without losing grandfathered status.

          The Amendment applies to changes to group health insurance coverage – including changes to enter into a new contract with a new issuer or a new policy with an existing issuer – that are effective on or after the date that the Amendment is published in the Federal Register (publication is expected on November 17, 2010).  For these purposes, the effective date of the change in insurance coverage is measured by its operative date, rather than the date the agreement is executed.

          By way of example, the preamble to the Amendment provides that if a plan enters into an agreement with an issuer on September 28, 2010, for a new policy to be effective on January 1, 2011, then January 1, 2011, is the date the new policy is effective, and therefore, the Amendment applies and the plan does not lose its grandfathered status simply because it entered into a new insurance policy.  In contrast, if a plan enters into an agreement with an issuer on July 1, 2010, for a new policy to be effective on September 1, 2010, then the Amendment would not apply and the plan would lose grandfather status.  The Departments, however, invite comments on the Amendment, including the prospective application of the Amendment and how it affects group health plans with different plan years.

General Grandfather Standards Still Apply

          The Amendment does not change the general standards under the interim final rule that limit the cost-sharing and other changes a group health plan may make if it chooses to maintain grandfathered status.  This means that a change in insurance carriers or policies cannot result in a change in coverage that, when compared to the coverage in effect on March 23, 2010, violates any of the grandfather standards.  Thus, for example, if a plan raises a percentage coinsurance cost-sharing requirement when it changes insurance carriers, it will lose grandfathered status.  For more details regarding these standards, read the Ice Miller health reform alert on grandfathered plans.

          In order to maintain grandfathered status, the Amendment provides that if a group health plan enters into a new policy, certificate or contract of insurance, it must provide the new health insurance issuer (and the issuer must require) documentation of the plan's terms under prior health coverage that is sufficient to determine whether the general grandfather standards are met.  The documentation must include information on benefits, cost sharing, employer contributions and annual limits.  A copy of the prior policy or summary plan description can be provided to satisfy this requirement, provided all relevant information is included.

          Ice Miller has been tracking the regulations and other guidance issued under the PPACA, and you can read about the regulations that have been issued thus far, including the grandfather rule, the adult-child rule, the prohibition on annual and lifetime limits, mandated preventive services, and the internal and external claims review process on Ice Miller's health care reform Web site.

          For more information regarding the grandfathered status rules under the PPACA, or for any other questions regarding how health care reform impacts group health plans, please contact Mary Beth Braitman, Terry A.M. Mumford, Christopher Sears, Tara Sciscoe, Shalina Schaefer or the Ice Miller LLP Employee Benefits attorney with whom you work.