Key Benefit Provisions that DO and DO NOT Apply to Grandfathered Plans

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Group health plans in existence on or before March 23, 2010, when the Affordable Care Act was signed into law may be considered “Grandfathered.”  Grandfathered plans are exempt from certain health care provisions, whereas non-grandfathered plans must comply with health care reform mandates.  Listed below are a summary of key benefit provisions that apply to Grandfathered Plans, and a list of key benefit provisions that DO NOT apply to Grandfathered plans.

It is important to note, that NOT all health insurance carriers are allowing a “Grandfathered” plan option.  In mid 2014, the carriers in California that were allowing Grandfathered group plan options were Kaiser Permanente and Health Net.  The other group carriers in California discontinued the “Grandfathered plan options.”

Key Benefit Provisions That DO Apply to Grandfathered Plans

Many of the changes under Health Care Reform apply to all plans, regardless of grandfathered status. Key requirements that grandfathered group health plans must comply with include:

  • 90-Day Limit on Waiting Periods. In plan years beginning on or after January 1, 2014, group health plans may not apply any waiting period that exceeds 90 days.  A waiting period is the period  of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective.
  • Dependent Coverage to Age 26. Grandfathered group health plans that offer dependent coverage must continue to make the coverage available until a child reaches the age of 26, unless the adult child has another offer of employer-based coverage (such as through his/her job). Beginning in 2014, a child up to age 26 can stay on the parent’s plan, even if the adult child is eligible to enroll in another employer-sponsored health plan.  Eligible dependents can also remain on their parents’ health insurance plan if they are married, up to age 26.
  • Elimination of Preexisting Condition Exclusions. Group health plans cannot limit or deny benefits or coverage for a child younger than age 19 on the basis of a preexisting condition (a health problem that developed before the child applied to join the plan). Effective for plan years beginning on or after January 1, 2014, this rule applies to both children and adults.
  • Medical Loss Ratio (MLR) Rebates. Employers who sponsor group health plans and receive rebates, as a result of insurance companies not meeting specific standards related to how premium dollars are spent, may be responsible for distributing the rebates to eligible plan enrollees annually.
  • No Lifetime or Annual Limits. Group health plans may not impose lifetime limits on coverage of “essential health benefits.” Annual limits on essential health benefits are prohibited for plans issued or renewed beginning January 1, 2014. Until then, annual limits are being phased out according to the limits set by law.
  • Prohibition on Rescission of Coverage. Group health plans are not permitted to rescind health coverage (meaning declare the coverage invalid from the time of enrollment), except in the case of fraud or intentional misrepresentation by a person covered under the plan.
  • Summary of Benefits and Coverage (SBC). Effective for plan years and open enrollment periods beginning on or after September 23, 2012, group health plans and health insurance issuers offering group coverage are required to provide participants and beneficiaries with a summary of benefits and coverage at several points during the enrollment process and upon request.

Key Benefit Provisions That DO NOT Apply to Grandfathered Plans

Grandfathered group health plans are not required to comply with certain changes under Health Care Reform, including requirements relating to:

As always, if you would like to evaluate which option is best for your company, MNJ Insurance Solutions is available to assist you and review the pros and cons of each scenario.  For more information, please contact us at (714) 716-4303.

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

What are Grandfathered Plans?

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Group health plans in existence as of March 23, 2010, when the Affordable Care Act was signed into law may be considered “Grandfathered.” Grandfathered plans are exempt from certain health care reform provisions, whereas non-grandfathered plans must comply with the healthcare reform mandates. Group health plans with “grandfathered” status may have significant consequences if they change to non-grandfathered/ACA compliant plans, including an increase in the cost of benefits and change of benefits.

What changes trigger loss of “grandfathered” status?

Any one of the following plan changes will cause a grandfather group health plan to lose its “grandfathered” status:

  • An increase in percentage of cost-sharing requirement, such as coinsurance, regardless of the amount;
  • An increase in the deductible or out-of-pocket maximum by an amount that exceeds medical inflation, plus 15% points;
  • An increase in copayments (if the increase exceeds the greater of five dollars, adjusted for medical inflation or medical inflation +15% points);
  • A decrease in the employer’s contribution rate by more than 5% (measured for each tier of coverage);
  • Elimination of all or substantially all benefits to treat a particular condition;
  • Adding or decreasing a new overall dollar limit to the plan that was in a fact as of March 23, 2010; or
  • The carrier no longer offers “grandfathered” plans.

Any of the following changes in the plan may also trigger the loss of grandfathered status of the plan, depending on the level of change:

  • The addition of a new prescription drug tier with new cost-sharing;
  • An increase in cost sharing related to wellness incentives or penalties;
  • An increase in retiree self-pay rates;
  • Transfer of employees into a less generous plan or plan option where the transfer is not due to a bona fide employment-based reason; and
  • Certain changes made in response to the Mental Health Parity and addiction equity at, such as increasing cost sharing for medical/surgical benefits, instead of lowering cost sharing for mental health and/or substance abuse disorder benefits.

NOTE: The employer must include a notice about the plans grandfather status insignificant participant communications, such as enrollment materials and summary plan descriptions. The notice does not need to be included with the SBC or EOBs). A model notice is available at: DOL Grandathered Model Notice

 What changes do not trigger loss of “Grandfathered” status?

The U.S. Departments of Health and Human Services (HHS), Department of Labor  (DOL), and Department of Treasury recently amended the requirements for maintaining grandfathered status under health care reform. Effective November 15, 2010 you can retain your plans grandfathered status after changing carriers or moving from a self-insured to a fully insured plan, as long as you have not made other changes that would cause the plan to lose grandfathered status. In addition, changing third-party administrators, pharmacy benefit managers, or changing the plans networks will not cause a plan to lose its grandfathered status.

According to HHS, they estimate the following:

  • 40% to 67% of individual policies will lose grandfathered status by 2011;
  • 34% to 64% of large employer group plans (100 or more employees) will lose their grandfather status by 2013; and
  • 49% to 80% of small employer group plans (3 to 99 employees) Will lose their grandfather status by 2013.

Loss of grandfathered status coincides with the effective date of the design changes. Also, once an employer loses its grandfathered status, they cannot return to set status at a later date. With all of the changes with the affordable care act, the decisions of whether or not to remain grandfathered must be carefully considered, as it has broad implications for the health plan and it’s participants.

 

Resources for Grandfathered Health Plans:

 

If you would like to further discuss the pros and cons of “Grandfathering” and would like to strategize a solution for your company, please call MNJ Insurance Solutions at (714) 716-4303.

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

Health Care Reform Timeline for Group Health Plans

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The Patient Protection and Affordable Care Act (HR 3590) was signed by President Obama on March 23, 2010 and the Health Care and Education Reconciliation Act approved by Congress, signed by the President on Wednesday, March 31, 2010 is intended to expand coverage to millions of Americans. Some measures will be implemented in 2010, but many will not take effect until 2014 with some extended out to 2020. A timeline with a high-level overview is provided below.

It is important to note that many of these reforms and their effective dates are subject to the rules and regulations process both at the state and federal levels, which could alter the intended timing of implementation.

2010

  • Employers covered by the Fair Labor Standards Act (FLSA) must provide reasonable breaks and a private space (not a restroom) for mothers to express milk for their infants up to one year of age.  The requirement does not apply to small employers (fewer than 50 employees) if it would create undue hardship.  The requirement is effective on enactment, but enforcement will not begin until the Department of Labor issues guidance defining terms and enforcement procedures.
  • Employers who employ 200 or more employees must automatically enroll new full-time employees in group health insurance coverage.  Employers must also provide employees with an opportunity to opt out of coverage.  Clarification on the effective date of this provision is forthcoming.

Effective 90 days after enactment

  • Temporary, national high-risk pool created to provide health coverage for individuals with pre-existing medical conditions.
  • Temporary re-insurance pool created for employer-sponsored plans providing health coverage to retirees over 55, who are not eligible for Medicare.
  • Ten percent tax on indoor tanning services applied after July 1, 2010.

Effective the first plan year beginning on or after September 23, 2010

  • Dependent health care coverage extended to adult children up to age 26.
  • Denial of coverage of pre-existing conditions prohibited for children.
  • Limits on lifetime dollar value of health coverage prohibited.
  • Rescinding health care coverage prohibited, except in the case of fraud on part of beneficiary.
  • Health plans required to provide preventive care without cost sharing, including certain immunizations; preventive care for infants, children, and adolescents; and certain preventive care and screenings for women.
  • Prohibition on requiring authorization of the primary care physician before a patient can see an obstetrician or gynecologist.
  • Tax credits provided to small business (fewer than 25 employees and average salary less than $50,000) that provide employees health care coverage.  The employer must pay at least 50% of the cost of coverage to qualify.

2010: Other Effective Dates

  • $250 rebate to Medicare Part D beneficiaries who reach the “donut hole” coverage gap in 2010 ($2830 in total drug costs).  Rebates expected to begin in July.
  • Health plans required to report percentage of premium dollars spent on clinical services, quality, and other activities.  Effective January 1, 2011, health plans are to pay rebates to consumers if spending on clinical services and quality is below a target level (85% for large groups; 80% for small group and individuals plans).
  • Adoption tax credit and adoptions assistance exclusion increased by $1000, effective for taxable years after 12/31/2009.

2011:

  • Employers required to report value of employer-provided health coverage on employees’ W-2 form.
  • Grants provided to small businesses to establish wellness programs.
  • Pharmaceutical manufacturers required to provide 50% discount on brand-name drugs purchased by Medicare Part D beneficiaries within the “donut hole” gap in coverage.
  • Over-the-counter medications no longer eligible for purchase through HSA or FSA plans, unless prescribed by a physician (in order to make rules consistent for itemized deduction of medical expenses).
  • Tax on early withdrawal from HSA (before age 65 for non-medical expenses) increased from 10 to 20 percent.
  • Long-term insurance program, finalized by voluntary payroll deductions, created to provide benefits to adults who become disabled.

2013:

  • $2,500 cap set on health care FSA contributions (may increase in subsequent years to keep pace with increases in the Consumer Price Index).
  • Deduction eliminated for employers who receive Medicare Part D retiree drug subsidy payments.
  • Begin phase-in of subsidies to eliminate “donut hole” gam in Medicare Part D coverage for prescription drugs by 2020.
  • Threshold for itemized deductions for medical expenses increased from 7.5 to 10 percent.  Taxpayers over age 65 can claim itemized deductions at 7.5 percent of adjusted gross income through 2016.
  • Medicare Part A (hospital insurance) tax rate on wages increased from 1.45 to 2.35 percent on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly.  Tax of 3.8 percent applied to unearned income for higher-income taxpayers.
  • Excise tax of 2.3 percent of the sale of specified medical devices.

2014:

  • States required to establish health benefit exchanges to facilitate the purchase of health insurance by individuals and small groups.
  • Individuals required to have minimum essential health care coverage.  Those who cannot demonstrate they have coverage will be required to pay a penalty equal to the greater of $95 or 1% of taxable income in 2014 (increasing annually).  Individuals, who cannot find a premium that is less than 8 percent of their income, or whose incomes are below the tax filing threshold are exempt.
  • Employers with 100 or more full-time equivalent “FTE” employees penalized for not providing health coverage (if employees without coverage are eligible for a subsidy on insurance exchanges).  Penalty is $2,000 per employee, with first 80 employees exempt (transitional relief for 2015).
  • Employers that offer coverage and contribute to the cost of coverage are required to offer “free choice vouchers” to employees with incomes below 400 percent of the federal poverty level and for whom the employer coverage costs between 8 and 9.8 percent of the employee’s household income to purchase health plans through the exchanges.
  • Insurers must cover all individuals and employers that apply for coverage.
  • Denial of coverage for participation in clinical trials is prohibited.
  • Insurance companies are limited in charging higher rates for higher-risk beneficiaries.  Factors allowed for consideration is limited to age, geography, family size, and tobacco use.
  • Annual dollar limits on essential health coverage is prohibited.
  • All qualified health plans within an exchange and in the individual and small group markets required to offer the essential health benefits package which includes specified benefits, limits on cost-sharing, and minimum actuarial values in coverage.
  • Increased small business tax credit for health coverage provided to employees through an exchange.
  • Health Insurance Provider W-2Reporting on the value of employer-sponsored coverage form 2013 (due January 2014).
  • Temporary Reinsurance Program Fee enrollment count due November 15, 2014 ($63/covered life for 2014); Fee sunsets after 2016.
  • Deadline for certain amendments to Section 125 Cafeteria Plan Documents (December 31, 2014).

2015:

  • Individual mandate penalty is the greater of $325 per adult or 2% of taxable income.
  • Employer-shared responsibility penalty begins for employers with 100+ FTE.
  • W-2 Reporting on the value of employer-sponsored coverage for 2014 (January 2015).
  • First installment of 2014 Temporary Reinsurance Program Fee due by January 15, 2015.
  • Comparative Effectiveness Research Fee “PCORI” continues (return/fees due by July 31, 2015).
  • Temporary Reinsurance Program Fee enrollment count due by November 15, 2015 ($44/covered life for 2015).
  • Second installment of 2015 Temporary Reinsurance Program Fee due by November 15, 2015.

2016:

  • Individual mandate penalty is the greater of $695 or 2.5% of taxable income.
  • Employer-shared responsibility penalty begins for employers with 50+ FTE.
  • First installment of 2015 Temporary Reinsurance Program Fee due by January 15, 2016.
  • Large Employer Reporting to IRS (Section 6055) on 2015 coverage offered to full-time employees.  This includes employer reporting to employees by January 31, 2016.
  • W-2 Reporting on the value of employer-sponsored coverage for 2015 (January 2016).
  • Comparative Effective Research Program Fee/PCORI continues (return/fees due by July 31).
  • Temporary Reinsurance Program Fee enrollment count due by November 15, 2015 (final year); national per capita rate for 2016 set in 2015.
  • Second installment of 2015 Temporary Reinsurance Program Fee due by November 15, 2016.

2017:

  •  Individual mandate penalty is greater of $695 (indexed)/adult or 2.5% of taxable income.
  • Exchanges may permit large employer to purchase Exchange coverage.
  • Employer shared responsibility penalty continues.
  • First installment of 2016 Temporary Reinsurance Program Fee due by January 15, 2017.
  • W-2 Reporting on the value of employer-sponsored coverage for 2016 (January 2017).
  • Large Employer Reporting to IRS (Section 6055) on 2016 coverage offered to full-time employees.  This includes employer reporting to employees by January 31, 2017.
  • Comparative Effectiveness Research Fee/PCORI continue (return/fees due by July 31).
  • Second installment of 2016 Temporary Reinsurance Program Fee due by November 15, 2017.

2018:

  • 20% Excise Tax on health plans that cost above $10,200 (single) and $27,500 (family), indexed to the CPI-U.
  • Individual mandate and employer shared responsibility penalties continue.
  • Large employer reporting to the IRS on 2017 coverage offered to full-time employees.  This includes the employer reporting to employees by January 31, 2018.
  • W-2 Reporting on the value of employer-sponsored coverage for 2017 (January 2018).
  • Comparative Effectiveness Research Fee/PCORI continue (return/fees due by July 31).

Effective Dates to be Determined in Regulation:

  • Auto-enrollment of new hires (awaiting guidance).
  • Reporting related to transparency in coverage for non-grandfathered plans, not sooner than 2015.
  • Quality reporting (for non-grandfathered plans, awaiting guidance).
  • Nondiscrimination rules for insured plans (for non-grandfathered plans, awaiting guidance).
  • Plans certify compliance with HIPAA EDI standards and operating rules (proposed deadline: December 31, 2015).

Disclaimer:  This document is for general information purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and we make no representations or warranties regarding its accuracy or completeness.  PPACA regulations are subject to change.

The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should see professional advice from their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.