IRS Releases Guidance for Grandfathering of Health Insurance Plans
The IRS has issued temporary and proposed guidance under which health insurance plans will be treated as grandfathered under the Patient Protection and Affordable Care Act (PPACA). Plans that are not grandfathered or that lose their grandfathered status will be subject to new shared responsibility requirements for employers after 2013. The IRS also provided the notice requirements that grandfathered plans must give to participants and beneficiaries.
The health care reform package does not mandate employer-provided coverage but it imposes "play or pay rules" after 2013 on plans that fail to satisfy minimum essential coverage requirements. Under the regulations, a health plan in existence on March 23, 2010 (the date that the PPACA was enacted) is deemed "grandfathered" and generally exempt from many of the requirements in the health care reform package.
The regulations explain when changes to the terms of a plan or health insurance coverage will cause the plan to cease being a grandfathered health plan. To retain grandfathered status, a plan generally must not:
- Eliminate all or substantially all benefits to treat a particular condition.
- Raise co-insurance charges.
- Raise fixed cost-sharing requirements other than a co-payment by more than the rate of medical inflation plus 15 percentage points.
- Raise a co-payment by more than the greater of an amount equal to $5 increased by medical inflation or medical inflation plus 15 percentage points.
- Lower employer contributions by more than five percent.
- Add or tighten an annual limit on what the insurer pays.
- If the plan is bought by or merges with another plan to circumvent compliance with the PPACA.
- Force participants to switch to another grandfathered plan that has less benefits or higher cost-sharing as a means of avoiding the requirements of the PPACA.
Grandfathered plans may raise premiums at reasonable rates to keep pace with inflation. Additionally, grandfathered plans may also continue to enroll new members.
The IRS's guidance also provides that certain plan changes that became effective after March 23, 2010 will not cause a plan to lose its grandfathered status. These include changes under:
- A contract entered into on or before March 23, 2010.
- A filing on or before March 23, 2010 with a state insurance department.
- Written amendments to a plan adopted on or before March 23, 2010.
A plan must notify participants and beneficiaries of its grandfathered status. The IRS had included model language in its guidance for notifying participants and beneficiaries.