Plans Allowed to Retain "Grandfathered" Status After Changing Insurance Coverage

On November 17, 2010, the U.S. Departments of the Treasury, Labor, and Health and Human Services released an amendment to the interim final regulations related to establishing and retaining a plan’s grandfathered status under the Patient Protection and Affordable Care Act (PPACA). The amendment provides guidance on when fully insured group health plans may change policies, certificates, or contracts of insurance without losing grandfathered status.

The amendment applies to changes to group health insurance coverage that are effective on or after November 15, 2010. The important date for this purpose is the effective date of the new coverage, not the date the plan enters into a new agreement for coverage. For example, if a plan enters into an agreement with an issuer on November 1, 2010 for a new policy to be effective January 1, 2011, the new policy will be covered under the amendment because it will not become effective until after November 15, 2010.

Retaining Grandfathered Status

Before the amendment, a fully insured group health plan would lose its status as a grandfathered health plan if the plan changed insurance coverage after March 23, 2010. This rule prevented plans from switching issuers or entering into new insurance policies if the plan wanted to retain its status as grandfathered plan under PPACA.

Under the amended regulation, a fully insured group health plan will be allowed to switch issuers and/or change insurance coverage without losing its grandfathered status as long as the new coverage does not result in significant cost increases, reduction in benefits, or other changes prohibited by the original rule. In order to retain grandfathered status under the amended regulation, a group health plan changing insurance carriers or policies must provide to the new insurance issuer documentation of the plan terms under the prior health coverage sufficient to determine whether a prohibited change is being made. This documentation may include a summary plan description or a copy of the prior policy.

Retaining grandfathered status is important for many group health plans because grandfathered plans are exempt from certain provisions of PPACA. For more detail on the underlying regulations related to grandfathered health plans, please see our Legal News Alert entitled, “Defining Grandfathered Plans and Maintaining Grandfathered Status Under Health Care Reform” at http://tinyurl.com/327dtol.

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