The IRS, the Department of Labor, and the Department of Health and Human Services issued interim final regulations on June 14 regarding grandfathered health plans under the health reform legislation enacted in March (T.D. 9489). The Patient Protection and Affordable Care Act (P.L. 111-148) incorporated the provisions of part A of title XXVII of the Public Health Service (PHS) Act into ERISA and the Internal Revenue Code and made them applicable to group health plans and health insurance issuers providing health insurance coverage in connection with group health plans. However, the act specified that certain grandfathered health plans (that is, plans or coverage existing as of the date of enactment) are subject only to certain provisions.
The preamble to the regulations says Congress, in making grandfathered health plans subject to some but not all of the health reforms contained in the act, was trying to balance the objective of preserving the right to maintain existing coverage with the goals of expanding access to and improving the quality of health coverage. However, the act does not specify when changes to a group health plan or health insurance coverage in which an individual was enrolled on March 23, 2010, are significant enough to cause the plan or health insurance coverage to cease to be a grandfathered health plan.
The balance between preserving the ability to maintain existing coverage, containing costs, and having as many individuals as possible benefit from the health care reforms was left to regulatory action; the interim final regulations are designed to strike that balance. Without some ability to make normal adjustments while retaining grandfather status, most plans or health insurance coverage would quickly cease to be regarded as the same group health plan or health insurance coverage that existed on March 23, 2010. This would frustrate the purposes of the grandfather provision.
On the other hand, allowing unfettered changes while retaining grandfather status would also be inconsistent with preserving coverage that was in effect on March 23, 2010. The interim final regulations are designed to take into account reasonable changes routinely made by plans or issuers without the plan or health insurance coverage losing its grandfather status so that individuals can remain enrolled in the coverage they had on March 23, 2010.
The interim final regulations will generally permit plans and issuers to make voluntary changes to increase benefits, to conform to required legal changes, and to adopt voluntarily other consumer protections in the Patient Protection and Affordable Care Act. In contrast, a plan or health insurance coverage will cease to be a grandfathered health plan if the plan or health insurance coverage makes certain changes in the regulations.
Generally, changes that will cause a plan or health insurance coverage to cease to be a grandfathered health plan are changes that significantly decrease the benefits covered, materially increase cost sharing by participants in ways that might discourage covered individuals from seeking needed treatment, or substantially increase the cost of coverage borne by participants.
The interim final regulations also set forth coordinated rules for determining when changes to the terms of a plan or health insurance coverage cause the plan or coverage to cease to be a grandfathered health plan.
The interim final regulations are effective upon publication in the Federal Register. The IRS, the Department of Labor, and the Department of Health and Human Services invited comments on the regulations, which should be submitted within 60 days of the regulations’ publication date.