Blue Cross Provides Update on Grandfathered Group Health Plans (4/11/11)
The Departments of Health and Human Services, Labor and the Treasury released additional information regarding the interpretation of the grandfather provision.
What are considered “bona fide employment-based reasons” for eliminating a benefit package that will not impact the grandfathered status of the other benefit packages?
While not exclusive, the reasons include:
• When a benefit package is being eliminated because the issuer is exiting the market;
• When a benefit package is being eliminated because the issuer no longer offers the product to the employer (for example, because the employer no longer satisfies the issuer's minimum participation requirement);
• When low or declining participation by plan participants in the benefit package makes it impractical for the plan sponsor to continue to offer the benefit package;
• When a benefit package is eliminated from a multiemployer plan as agreed upon as part of the collective bargaining process; or
• When a benefit package is eliminated for any reason and multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred.
What happens to the grandfathered status of my plan when changes are made to the formulary due to the release of generic drugs where my plan’s cost-sharing level is based on whether the drug has a generic alternative and as a result of the newly available generic drug the cost sharing for the brand-name increases?
For example, if, as of March 23, 2010, the terms of the plan included prescription drug benefits with different cost-sharing divided into tiers as follows:
• Tier 1 includes generic drugs only;
• Tier 2 includes brand name drugs with no generic available;
• Tier 3 includes brand name drugs with a generic available in Tier 1; and
• Tier 4 includes IV chemotherapy drugs.
A drug was previously classified in Tier 2 as a brand name drug with no generic available. However, a generic alternative for the drug has just been released and is added to the formulary. Since the generic is now available, the plan moves the brand name drug into Tier 3 and adds the generic to Tier 1. This movement of the brand name drug into a higher cost-sharing tier does not cause the plan to relinquish grandfather status
When changing a plan’s benefits, when does the plan become non-grandfathered?
A plan operating on a calendar plan year is considering an amendment to plan terms that will exceed the thresholds described in paragraph (g)(1) of the interim final regulations and cause it to relinquish grandfather status. If the plan sponsor decides to adopt this amendment on July 1, 2011, and the change becomes effective for the plan year beginning on January 1, 2012, at what point in time does the plan relinquish grandfather status?
A plan or coverage will cease to be a grandfathered health plan when an amendment to plan terms, which exceeds the thresholds described in paragraph (g)(1) of the interim final regulations, becomes effective – regardless of when the amendment is adopted. Therefore, in this example, the plan would cease to be a grandfathered health plan on January 1, 2012, the first day of the first plan year for which the change is effective.
A plan operating on a calendar plan year is considering an amendment to plan terms that will cause it to relinquish grandfather status, but wants the amendment to become effective before the first day of the next plan year. If the plan sponsor decides to make this amendment effective on July 1, 2011, does the plan relinquish grandfather status in the middle of the plan year?
Yes. A plan or coverage will cease to be a grandfathered health plan when a plan amendment becomes effective. Therefore, if a plan sponsor chooses to make an amendment to plan terms effective in the middle of a plan year, the plan will cease to be a grandfathered health plan at that time.
If a plan sponsor wishes to avoid relinquishing grandfathered status in the middle of a plan year, any changes that will cause a plan or coverage to relinquish grandfather status should be made effective the first day of a plan year that begins after the change is adopted.
A plan covers both retirees and active employees and is subject to the market reform requirements of the Affordable Care Act. For retirees, the employer that sponsors the plan contributes $300 per year multiplied by the individual's years of service for the employer, capped at $10,000 per year. As the cost of coverage increases over time, how is it determined whether the employer's contribution rate has decreased for purposes of maintaining grandfather status?
In this example, the employer makes contributions based on a formula. Accordingly, the plan will cease to be a grandfathered health plan if the employer decreases its contribution rate towards the cost of coverage by more than five percent below the contribution rate on March 23, 2010. If the formula does not change, the employer is not considered to have reduced its contribution rate, regardless of any increase in the total cost of coverage. However, if the dollar amount that is multiplied by years of service decreases by more than five percent (or if the $10,000 maximum employer contribution cap decreases by more than five percent), the plan will cease to be a grandfathered health plan.
Senate Sends 1099 Repeal Bill To Obama. (4/7/11)
The Senate vote to repeal the 1099 provision in the healthcare law received wide coverage in print and online. Most sources characterized the action as a win for small businesses, with both parties claiming victory for the effort. The AP (4/6) reports, "Congress sent the White House its first rollback of last year's health care law Tuesday, a bipartisan repeal of a burdensome tax reporting requirement that's widely unpopular with businesses." The AP says that "even President Barack Obama is eager to" repeal this provision of the law. White House spokesman Jay Carney stated, "We are pleased Congress has acted to correct a flaw that placed an unnecessary bookkeeping burden on small businesses. ... The administration remains eager to work with anyone with ideas about how we can make health care better or more affordable for all Americans."
Politico reports, "The overwhelmingly bipartisan vote, 87-12, gives President Barack Obama the first opportunity to sign or veto a bill repealing a piece of his signature law. He's expected to sign it despite concern about how to replace the money the provision would have raised." Notably, Senate lawmakers "passed the House's 1099 repeal bill, H.R. 4, without changes, allowing it to go directly to the White House."
12 Commonly Asked Questions
Working with our legal partner Dykema, they have prepared a summary of both the Patient Protection and Affordable Care Act (PPACA) and the Reconciliation Act that were passed in March 2010. They have identified 12 key commonly asked questions that impact employers and their self-funded or fully insured health care benefit programs, and provided specific information. For these questions and answers, click here.
"Grandfather Rule" Reference
The "Grandfather Rule" implements a portion of the Affordability Care Act and effects individuals, employers and insurers. For frequently asked questions on this portion of the act, click here.
Update to the Grandfather Rule (11/15/10) by attorney at law, Larry Grudzien. More flexibility is now available, click here.
Blue Cross Blue Shield of Michigan has prepared several reference pieces on different dimensions of our new National Healthcare reform laws. You may find one or more of these links useful in answering frequently asked questions:
• For groups navigating health reform laws, click here.
• How plan year impacts individuals and groups, click here.
• Continuing coverage for dependent children, click here.
• Frequently Asked Questions for group customers, click here.
• You pay nothing for these Preventative Blue Services, click here.
• News from the Blues - Nondiscrimination Requirements & Simplification of Administration, click here.
The National Association of Health Underwriters has prepared this power point presentation on National Healthcare Reform covering such subjects as Grandfathered Plans, Non-Grandfathered Plans, PPACA in 2012 thru 2014, ‘Essential Benefits’, Health & Wellness, as well as an important listing of Employer Responsibilities. Click here to download the Powerpoint file.
- Upcoming Compliance Responsibilities for Employers during the Summer of 2012 - Click Here
National Healthcare 1099 Law Changes
Starting in 2012 small business 1099’s could quadruple! Part of the National Healthcare Reform legislation passed in March of this year will require companies making payments to vendors in excess of $600 a year to report payments to the IRS. For more information, click here.
IRS Guidance on Small Business Eligibility for Tax Credit on Healthcare Premiums
To determine if you are eligible and what steps you need to take to obtain this credit for 2010 going forward, click here.
Update December 2, 2010 -- Final guidance on Tax Credit eligibility and claims forms for 2010 Tax Year click here.
Businesses Could Face Penalties for Non-Compliance
If businesses don't comply with many of the new national healthcare reform legislation elements, the results could be very costly. To better understand these potential penalties and help prevent them, click here.