Feds Relax the Rules on Grandfathered Health Plans

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Published December 2010

Under the provisions of the Patient Protection and Affordable Care Act (PPACA), employers who are able to claim grandfathered status have an advantage. That is, they can bypass certain aspects of PPACA, like paying the full cost of preventative care. But in order to retain the grandfathered status of their plans, employers have been subject to harsh burdens, including the requirement that they may not change insurers, voluntarily or otherwise.In November of 2010, three federal departments — Health and Human Services (HHS), Treasury, and Labor — acted to reverse course on this requirement. Employers can now switch health insurance carriers without losing grandfathered status, provided the coverage under the new plan is essentially the same, without significantly increasing employee costs or reducing benefits to those covered.

Why the Change?

The U.S. Chamber of Commerce and other organizations urged HHS to reconsider the prohibition, pointing out that it created basic inequities and could result in higher overall health insurance costs.  An HHS fact sheet lists these reasons for the amendment:

 

  • Certain circumstances can render it necessary to make administrative changes to health plans, which do not affect benefits or costs. For example, a carrier may change ownership, or may cease to offer coverage in a given market.
  • If an employer has to stay with the same insurance company to keep the benefits of having a grandfathered plan, the insurance company has undue and unfair leverage in negotiating the price of coverage renewals.
  • The prior rule unfairly favored self-insured employers, because they were allowed to change insurers without the threat of losing grandfathered status. Under this amendment, all employers have the flexibility to keep their grandfathered plan but change insurance companies or third-party administrators.
  • Allowing employers to shop around can help keep costs down while ensuring individuals can keep the coverage they have.

 

Who Can Take Advantage of this Amendment?

All group health plans can potentially benefit from the amendment, while plans purchased through the individual market cannot. For individual plans, a change of issuers still results in the loss of grandfathered status.

The exemption became effective on November 15th, 2010, and applies to carrier changes that take effect on or after that same date. For more information, here is the new amendment published in the November 17, 2010 Federal Register.