Yesterday, the three primary agencies charged with regulating and enforcing the federal government’s health care reform effort (Department of Treasury, Department of Health and Human Services, and Department of Labor) released interim final regulations that address the applicable exemptions for grandfathered health plans and the changes that may and may not be made to plans seeking to retain their grandfathered status.  Recall from prior posts that a "grandfathered" health plan is an employment-based group health plan (insured or self-funded) or individual insurance coverage existing as of March 23, 2010.   The final regulations answer a few burning questions about the applicability of health care reform to these plans and how they must conform (or not).

Plans seeking to maintain their grandfathered status have to make sure they don't do certain things that cause a loss of the status. These interim final regulations provide that a group health plan or health insurance coverage no longer will be considered a grandfathered health plan if a plan sponsor or an issuer:

1. Eliminates all or substantially all benefits to diagnose or treat a particular condition. The elimination of benefits for any necessary element to diagnose or treat a condition is considered the elimination of all or substantially all benefits to diagnose or treat a particular condition;
2. Increases a percentage cost-sharing requirement (such as coinsurance) above the level at which it was on March 23, 2010;
3. Increases fixed-amount cost-sharing requirements other than copayments, such as a $500 deductible or a $2,500 out- of-pocket limit, by a total percentage measured from March 23, 2010 that is more than the sum of medical inflation and 15 percentage points.
4. Increases copayments by an amount that exceeds the greater of: a total percentage measured from March 23, 2010 that is more than the sum of medical inflation plus 15 percentage points, or $5 increased by medical inflation measured from March 23, 2010;
5. For a group health plan or group health insurance coverage, an employer or employee organization decreases its contribution rate by more than five percentage points below the contribution rate on March 23, 2010; or
6. With respect to annual limits (1) a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, did not impose an overall annual or lifetime limit on the dollar value of all benefits imposes an overall annual limit on the dollar value of benefits; (2) a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, imposed an overall lifetime limit on the dollar value of all benefits but no overall annual limit on the dollar value of all benefits adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on March 23, 2010; or (3) a group health plan, or group or individual health insurance coverage, that, on March 23, 2010, imposed an overall annual limit on the dollar value of all benefits decreases the dollar value of the annual limit (regardless of whether the plan or health insurance coverage also imposes an overall lifetime limit on the dollar value of all benefits).

On top of creating a standard for maintaining "grandfathered" status, the interim regulations also provide some specific clarification related to applicability of the reforms to grandfathered plans:

1. “Excepted benefits,” such as dental-only, vision-only, and health flexible spending account plans, are exempt from the health care reform plan design and operational changes.
2. There is no broad exemption for collectively bargained insured plans that are subject to bargaining agreements in effect on March 23, 2010; such plans are simply deemed to be grandfathered health plans until the termination of the last collective bargaining agreement in effect on March 23, 2010, and are subject to all of the health care reform changes that otherwise apply to grandfathered health plans (e.g., the adult child coverage rules apply, but the new appeal procedures will not apply).
3. The delayed effective date for collectively bargained insured plans does not extend to self-funded health plans.  Self-funded collectively bargained plans will be subject to the same requirements as other self-funded employment-based health plans.
4. Adding existing employees as new enrollees in an employment-based group health plan after March 23, 2010, will not affect the plan’s status as a grandfathered health plan.
5. A plan that has multiple benefit packages may have both grandfathered and non-grandfathered benefit packages; the rules apply separately to each benefit package.
6. Retiree-only health plans generally are exempt from the health care reform plan design and operational changes (e.g., extension of coverage to adult children up to age 26, coverage of preventive care without cost-sharing, etc.).
7. In general, plan changes adopted before March 23, 2010, with an effective date after that date will not cause a loss of grandfathered status.  If an employer/plan sponsor made changes to a group health plan since March 23, 2010, that would cause a plan to lose its grandfathered status under the new guidance, the employer/plan sponsor may reverse those changes before the first plan year beginning on or after September 23, 2010 (generally, the 2011 plan year) and preserve grandfathered health plan status.

We will continue to monitor developments in the law and provide updates, but we can anticipate that between now and September 23, we will get lots more information.