The Treasury Department has issued regulations providing interim rules on provisions of the Patient Protection and Affordable Care Act — the healthcare reform legislation — that excuse certain previously existing plans from complying with some of the law’s requirements. These “grandfathered plans” must comply with some of the new rules but not others, as the law balances the goal of letting people keep their existing coverage with the goal of improving access to coverage and quality of coverage.
As an example, grandfathered plans must comply with a rule that takes effect soon prohibiting rescissions of coverage except in cases of fraud or intentional misrepresentation. Health insurance providers have been accused of using minor inaccuracies on enrollment forms as an excuse to terminate coverage when an individual requires expensive medical treatment. When this provision takes effect (plan years beginning on or after September 23, 2010), all plans must comply with this rule.
On the other hand, the Affordable Care Act generally requires (with the same effective date) that preventive health services be covered without any cost sharing. Yet grandfathered plans will not be required to comply with this rule. Companies wishing to continue requiring employees to contribute toward the cost of these services must maintain grandfathered status for their plans.
The new regulations set forth rules for maintaining that status. They include a requirement to disclose to plan participants and beneficiaries that the plan is believed to be a grandfathered plan and a requirement to maintain records necessary to verify that status. A plan may add coverage for family members of covered individuals or for new employees without losing grandfathered status. However, to prevent this status from being bought and sold as a commodity, the regulations provide that if the principal purpose of a merger or similar transaction is to cover more individuals under a grandfathered plan, that status will terminate.
Additional rules govern changes that may or may not be made while maintaining this status. Switching coverage to a different insurance company will be considered the adoption of a new plan. The same is true for elimination of all or substantially all benefits to diagnose or treat a particular condition, such as cystic fibrosis. The rules permit certain changes in copayment and deductibles, but companies wishing to go beyond the limits set forth in the regulations will lose grandfathered status.
Related: full text of regulations (PDF)
