Exploring the nuance of “grandfathering”
Just when the concept of “grandfathering” seemed clear – there is always some nuance to keep us all on our toes. Grandfathering a plan means to basically keep it the same, and in doing so, the employer gets to avoid certain mandates of the national healthcare reform law. In some cases grandfathering is meaningful to employers and in some cases it is not. More than anything, the opportunity to grandfather a plan seems to provide more of a transition period to the Affordable Care Act than a long-term solution. A survey released by Hewitt recently suggested that nine out of ten employers expect to lose grandfather status. But still, if there is interest in the marketplace to do this, we need to be clear on the circumstances under which a plan can be grandfathered. Indeed, the law outlines permissible changes to maintain grandfathered status. It is within these interpretations that we get tripped up.
Let’s examine a recently debated parameter that exists but seems hidden: Does bringing a group health plan into compliance with a state or federal mandate jeopardize its grandfathered status? We find that some legal minds are divided on this point. And the answer, as always, is: it depends.
Federal Mental Health Parity is a good example. Federal Mental Health Parity applies to plan years beginning on or after July 1, 2010. The Federal Mental Health Parity law requires that any group health plan that includes mental health and substance abuse disorder benefits along with standard medical and surgical coverage must treat them equally in terms of out-of-pocket costs, benefit limits and practices such as prior authorization and utilization review. Depending on the current design of a health plan, compliance with Federal Mental Health Parity could mean an addition or an elimination of cost-sharing elements associated with the plan.
- If an employer must eliminate a co-payment, or otherwise make the plan richer from the perspective of the employee, in order to come into compliance with Mental Health Parity, it is permissible to remain grandfathered.
- If an employer must add a co-payment to meet Federal Mental Health Parity requirement, it is our position that it is NOT permissible to remain grandfathered.
Legal contacts of ours have lent some clarity on this topic asserting that people are not reading the full text of the paragraph which addresses this, specifically the last sentence (in red below). The passage reads:
“Under these interim final regulations, changes other than the changes described in 26 CFR 54.9815–1251T(g)(1), 29 CFR 2590.715–1251(g)(1), and 45 CFR 147.140(g)(1) will not cause a plan or coverage to cease to be a grandfathered health plan. Examples include changes to premiums, changes to comply with Federal or State legal requirements, changes to voluntarily comply with provisions of the Affordable Care Act, and changing third party administrators, provided these changes are made without exceeding the standards established by paragraph (g)(1).” (Emphasis added).
It is therefore our interpretation that bringing your health plan into compliance with Federal Mental Health Parity alone does not give unalienable rights to grandfathering; it depends on exactly what plan changes must be made in order to make this determination.
Be sure you weigh the pros and cons carefully before deciding to grandfather your plan and be sure to apply the law in its entirety to your plan before making an assertion one way or another.
For specific details regarding the definition of grandfathering please refer to the Health Reform Advisory Corner of our website for a link to our guide.