July 13, 2020
On July 10, 2020, the Internal Revenue Service, together with the Departments of Labor and Health and Human Services issued a proposed rule that would amend current regulations to allow grandfathered health plans greater flexibility to make changes to certain types of cost-sharing requirements without causing a loss of grandfather status. Frequently Asked Questions related to the proposed rule were also released.
The additional flexibility would be available only for changes that are effective on or after the effective date of any final rule and would not allow non-grandfathered plans to become grandfathered or to regain grandfather status.
The Affordable Care Act (ACA) provides that grandfathered health plans are subject to certain, but not all, of ACA’s provisions, as long as they are able to maintain their status as a grandfathered health plan. Regulations regarding maintaining grandfathered status were finalized in 2015 (referred to as the 2015 final rules). In general, under the 2015 final rules, a group health plan or group health insurance coverage is considered grandfathered as long as it has continuously provided coverage to at least one individual since March 23, 2010 (the ACA effective date) and the plan or issuer hasn’t taken certain specified actions. The 2015 final rules also outline certain changes to a group health plan or coverage that could be made that would not result in a loss of grandfathered status.
If finalized, the proposed rule would amend the 2015 final rules in two ways:
Increased Flexibility for High Deductible Health Plans (HDHP)
The proposed rule provides that grandfathered group health plans and grandfathered group health insurance coverage that are HDHPs under Internal Revenue Code (Code) section 223(c)(2) may make increases to fixed-amount cost-sharing requirements (co-pays, deductibles and out-of-pocket maximums) to the extent those changes are necessary to comply with requirements to maintain their status as an HDHP, even if the changes would otherwise cause the plan to lose grandfathered status. This amendment would ensure that participants and beneficiaries in these plans are able to maintain their eligibility to contribute to a health savings account (HSA) as the plan will be able to meet its requirements for a HDHP without losing grandfathered status.
Facts. A group health plan that is a grandfathered health plan and a HDHP within the meaning of Code section 223(c)(2) had a $2,400 deductible for family coverage on March 23, 2010. The plan is subsequently amended after the effective date of final rule to increase the deductible limit by the amount that is necessary to comply with the requirements for a plan to qualify as a HDHP under Code section 223(c)(2) but that exceeds the maximum percentage increase.
Conclusion. In this example, the increase in the deductible at that time does not cause the plan to cease to be a grandfathered health plan because the increase was necessary for the plan to continue to satisfy the definition of a HDHP under Code section 223(c)(2).
Under the 2015 final rules, increases to co-pays, deductibles, or out-of-pocket maximums (fixed-amount cost sharing) cannot exceed certain thresholds and are determined referencing a Consumer Price Index measure of medical inflation since March 2010, plus 15 percentage points.
The proposed rule would revise the definition of “maximum percentage increase” to include an alternative method for measuring the increase. Permitted increases would be determined, in part, by reference to this same measure in the 2015 final rules, or by using the most recently published “premium adjustment percentage” (plus 15 percentage points), whichever is greater. The premium adjustment percentage is published annually by the Department of Health and Human Services and reflects the cumulative, historic growth from 2013 through the preceding calendar year in premiums for private health insurance, excluding Medigap and property and casualty insurance. This alternate inflation measure would better account for changes in the costs of health coverage over time.
Facts. A grandfathered group health plan increases the copayment requirement to $45, effective after the effective date of final rule. On March 23, 2010, the grandfathered plan had a copayment requirement of $30 per office visit for specialists.
The increase in the copayment, expressed as a percentage is 50% ($45−$30 = $15; $15/ $30). Under the proposed rule, the plan may increase the copayment by the greater of (1) medical inflation, expressed as a percentage, plus 15 percentage points; or (2) the applicable portion of the premium adjustment percentage for the calendar year that includes the effective date of the increase, plus 15 percentage points.
The medical inflation value percentage from March 2010 is 40.27% (25.27% + 15%). In the calendar year that includes the effective date of the increase, the applicable portion of the premium adjustment percentage is 51% (36% + 15%).
Conclusion. In this example, the plan still maintains its grandfathered status because the 50% increase in the copayment is less than the 51% maximum percentage increase permitted under the adjustment percentage alternative. Note that using the current methodology in the 2015 final regulations, the plan would have lost its grandfathered status because the 50% copayment increase is greater than the percentage increase using the medical inflation rate of 40.27%.
For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:
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