Employers can offer the same level of coverage through a new issuer and remain grandfathered but be sure to adhere to the other grandfather rules.

The Departments of Health and Human Services (HHS), Labor, and the Treasury have issued an amendment to the interim final regulations on grandfathered plans (health coverage in place on March 23, 2010), which include rules for determining when changes to a health plan cause the plan to lose its grandfathered status.

The amendment permits a group health plan to change health insurance coverage (that is, to enter into a new policy, certificate, or contract of insurance) without losing the grandfathered status of the health plan, so long as it has not made any other changes that would revoke its status under paragraph (g)(1) of the interim final regulations.

What does the amendment change?
Previously, one of the ways a group health plan could lose its grandfather status was if the employer changed issuers – switching from one insurance company to another. The original interim final regulations only allowed self-funded plans to change third-party administrators without necessarily losing their grandfathered plan status. The amendment allows employers to offer the same level of coverage through a new issuer and remain grandfathered, as long as the change in issuer does not result in:

• Significant cost increases,
• A reduction in benefits, or
• Other changes described in the original grandfather rule.

What types of plans does this affect?

• The amendment affects insured group health plans.
• A change of issuers in the individual market would still result in the loss of grandfathered status.

What documentation does the amendment require for a change in coverage?

To maintain status as a grandfathered health plan, a group health plan that enters into a new policy, certificate, or contract of insurance must provide to the new health insurance issuer (and the new health insurance issuer must require) documentation of plan terms (including benefits, cost sharing, employer contributions, and annual limits) under the prior health coverage sufficient to determine whether any change described in paragraph (g)(1) of the original interim final rules is being made. This documentation may include a copy of the policy or summary plan description.

What is the effective date of the amendment?
The amendment to the interim final regulations is effective on November 15, 2010.

Does the amendment apply retroactively?
The amendment applies to such changes to group health insurance coverage that are effective on or after November 15, 2010; the amendment does not apply retroactively to such changes to group health insurance coverage that were effective before this date. For this purpose, the date the new coverage becomes effective is the operative date, not the date a contract for a new policy, certificate or contract of insurance is entered into.

• For example, if a plan enters into an agreement with an issuer on September 28, 2010 for a new policy to be effective on January 1, 2011, then January 1, 2011 is the date the new policy is effective and, therefore, the relevant date for purposes of determining the application of the amendment to the interim final regulations.
• If, however, the plan entered into an agreement with an issuer on July 1, 2010 for a new policy to be effective on September 1, 2010, then the amendment would not apply and the plan would cease to be a grandfathered health plan.

Why did HHS, Labor and Treasury make this change?
The Departments adopted this amendment in response to comments received concerning the section of the interim final rules that provides that a group health plan will relinquish grandfather status if it changes issuers or policies. Those concerns included the following:

• There are circumstances where a group health plan may need to make administrative changes that don’t affect the benefits or costs of a plan. For example, an insurer may stop offering coverage in a market. Or a company may change hands. In those cases, the employer can maintain grandfathered status for their employee’s plan under this amendment.
• Comments expressed concern that the original provision could have the inadvertent effect of interfering with health care cost containment. If an employer has to stay with the same insurance company to keep the benefits of having a grandfathered plan, the insurance company has undue and unfair leverage in negotiating the price of coverage renewals. Allowing employers to shop around can help keep costs down while ensuring individuals can keep the coverage they have.
• Some employers buy coverage from insurance companies; others “self-insure,” meaning that they pay claims themselves but usually hire a third-party administrator (TPA) to handle the paperwork. Usually only large companies can self-insure. Before this amendment, self-insured plans could change the company hired to handle the paperwork without losing grandfathered status as long as the benefits and costs of the plan stayed the same, while an employer that just changed insurance companies while maintaining the same benefits under their plan could not do so. Under this amendment, all employers have the flexibility to keep their grandfathered plan but change insurance company or third-party administrator.

Where can I find more information on this amendment?

• For more information on the amendment, please see this Fact Sheet.
• To read the amendment in its entirety, please click here.

"Group Health Plans May Change Health Insurance Issuers without Losing Grandfather Status" December 2010 <HR and Benefits Essentials Newsletter> (December 2010)