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Frequently Asked Questions about Grandfathered Plans

By Linda Rowings
Chief Compliance Officer
United Benefit Advisors

As employers determine their plan designs for the coming year, those with grandfathered status need to decide if maintaining grandfathered status is their best option. Following are some frequently asked questions, and answers, about grandfathering a group health plan.

Q1: May plans maintain grandfathered status after 2014?

A1: Yes, they may. There is no specific end date for grandfathered status.

Q2: What are the advantages of grandfathered status?

A2: Grandfathered plans are not required to meet these PPACA requirements:

  • Coverage of preventive care without employee cost-sharing, including contraception for women
  • Limitations on out-of-pocket maximums (starting in 2014)
  • Essential health benefits, metal levels and deductible limits (starting in 2014; these only apply to insured small group plans)
  • Modified community rating (starting in 2014; this only applies to insured small group plans)
  • Guaranteed issue and renewal (starting in 2014; this only applies to insured plans)
  • Nondiscrimination rules for fully insured plans (requirement has been delayed indefinitely)
  • Expanded claims and appeal requirements
  • Additional patient protections (right to choose a primary care provider designation, OB/GYN access without a referral , and coverage for out-of-network emergency department services)
  • Coverage of routine costs associated with clinical trials (starting in 2014)
  • Reporting to HHS on quality of care (requirement has been delayed indefinitely)

Q3: What PPACA requirements apply to grandfathered plans?

A3: Most PPACA requirements apply to grandfathered plans. This includes:

  • Limits on waiting periods (starting with the 2014 plan year)
  • PCORI fee
  • Transitional reinsurance fee
  • Summary of Benefits and Coverage
  • Notice regarding the exchanges
  • No rescissions of coverage except for fraud, misrepresentation, or non-payment
  • Lifetime dollar limit prohibitions on essential health benefits
  • Phase-out of annual dollar limits on essential health benefits, with all limits removed by 2014
  • Dependent child coverage to age 26 (an exception for grandfathered plans when other coverage is available expires in 2014)
  • Elimination of pre-existing condition limitations (for children currently and all covered persons starting in 2014)
  • W-2 reporting of health care coverage costs (this only applies if the employer provided more than 250 W-2s for the prior calendar year)
  • Wellness program rules
  • Minimum medical loss ratios (this only applies to insured plans)
  • Employer shared responsibility (“play or pay”) requirements (starting with 2015)
  • Employer reporting to IRS on coverage (starting in 2015)
  • Excise (“Cadillac”) tax on high cost plans (starting in 2018)
  • Automatic enrollment (this only will apply to employers with more than 200 full-time employees; this requirement has been delayed indefinitely)

Q4: What must a plan do to maintain grandfathered status?

A4: To maintain grandfathered status, a plan must look at its benefits and contribution levels as of March 23, 2010 and must not:

  • Eliminate or substantially eliminate benefits for a particular condition

–  For example, if a plan covered counseling and prescription drugs to treat certain mental and nervous disorders and eliminates coverage for counseling, the plan will lose grandfathered status.

  • Increase cost-sharing percentages

–  For example, if the plan had an 80 percent coinsurance rate in March 2010 and decreases the rate to 70 percent, the plan will lose grandfathered status.

  • Increase co-pays by more than $5 or a percentage equal to medical inflation (currently 9.5 percent*) plus 15 percent, whichever is greater

–  For example, if the plan had an office visit copay of $30 in March 2010, it could increase it to $37.35 without losing grandfathered status.

  • Raise fixed amount cost-sharing other than co-pays by more than medical inflation (currently 9.5 percent*) plus 15 percent

–  For example, if the plan had a deductible of $1,000 and an out-of-pocket maximum of $2,500 in March 2010, it could increase the deductible to $1,200 and the out-of-pocket limit to $3,100 without losing grandfathered status.

  • Lower the employer contribution rate by more than 5 percent for any group of covered persons

–  For example, if the employer contributed 80 percent of the cost of employee-only coverage and 60 percent of the cost of family coverage in March 2010, if the employer keeps its contribution percentage for employee-only coverage at 80 percent but reduces its contribution for family coverage to 50 percent, the plan will lose grandfathered status.

  • Add or reduce an annual limit

–  For example, a plan that previously had no limit on MRIs could not impose a $10,000 per year maximum on MRIs without losing grandfathered status.

The plan also must:

  • Maintain records of its plan design and contribution levels as of March 23, 2010 and any changes since that date
  • Include a notice about the plan’s grandfathered status in significant participant communications, such as enrollment materials and summary plan descriptions. (The notice does not need to be included with the SBC or EOBs.) A model notice available at: www.dol.gov/ebsa/grandfatherregmodelnotice.doc

Q5: How are changes measured?

A5: Changes are measured cumulatively since March 2010. So, for example, if an employer contributed 70 percent of the cost in March 2010, and reduced its share to 68 percent in January 2012, it could again reduce its share, to 65 percent, in January 2015 without losing grandfathered status.

Or, if the deductible was $500 in March 2010 and it was increased to $550 in July 2011, it could be increased to $600 in July 2014 without losing grandfathered status.

Q6: Will violating just one of the requirements forfeit grandfathered status?

A6: Yes.

Q7: What changes may a plan make and keep grandfathered status?

A7: A plan will not lose grandfathered status if it:

  • Changes insurers (on or after Nov. 15, 2010) or third party administrators, as long as benefits do not change
  • Moves between self-funded and insured status, as long as benefits don’t change
  • Makes changes required by law
  • Increases benefits
  • Makes any change other than a prohibited change (for example, a change to eligibility rules)
  • Moves drugs to a different copay tier because the drugs have become generic
  • Changes networks
  • Passes along premium increases (as long as the increase is essentially shared pro rata)
  • Adds new employees or family members to the plan

Q8: If an employer offers several plan options, can it keep grandfathered status for some plans even if it has lost it for others?

A8: Yes, it can. So, for instance, an employer could have a grandfathered PPO option and a non-grandfathered HMO option.

Q9: Can an employer add tiers without losing grandfathered status?

A9: Yes it can, as long as it maintains its contribution level for all tiers at the required level. For example, if the employer offered a 2-tier plan and paid 90 percent of the cost of employee-only coverage and 75 percent of the cost of family coverage in March 2010, it could move to 4 tiers in March 2014 without losing grandfathered status as long as it paid at least 85 percent of the cost of employee-only coverage and at least 70 percent of the cost of employee plus spouse, employee plus children and family coverage.

Q10: Can an employer add a wellness program without losing grandfathered status?

A10: An employer can add a wellness program without losing grandfathered status, but needs to take care to make sure it maintains contributions and benefits at the needed levels. (Wellness plans do not have special rules that would give them extra latitude.)

Q11: If an employer loses grandfathered status, can it get it back?

A11: With the exception of a transition period in 2010, a plan that loses grandfathered status, even inadvertently, cannot get it back. This seems to include losing status because the required notice was not provided.

Q12: What happens if a plan loses grandfathered status?

A12: The plan must comply with all of the requirements that apply to non-grandfathered plans as of the effective date of the change that caused the loss of status. So, for example, if the plan is amended to increase the coinsurance level effective Jan. 1, 2014 but the amendment isn’t signed until Feb. 6, 2014, grandfathered status is lost as of Jan. 1, 2014.

Q13: Are there special rules for bargained plans?

A13: A fully-insured plan maintained under one or more collective bargaining agreements ratified before March 23, 2010 may remain a grandfathered plan at least until the date on which the last agreement relating to the coverage that was in effect on March 23, 2010 terminates. (Self-insured plans maintained under a collective bargaining agreement are not eligible for this collectively bargained exception.) After the date on which the last of the collective bargaining agreements terminates, the usual rules for maintaining grandfather status apply – the current terms of the plan are compared to the terms that were in effect on March 23, 2010.

Q14: Should a plan keep grandfathered status for 2014?

A14: Whether to keep grandfathered status for 2014 is the plan sponsor’s decision. Typically, the employers most interested in maintaining grandfathered status are those who:

  • Want to retain an out-of-pocket limit above $6,350/12,700
  • Have religious objections to covering contraception
  • Have carve-out plans for executives
  • Are in the small group market and wish to avoid the insurance market changes (essential health benefits, cost-sharing limits, metal levels and modified community rating)

* Medical inflation is measured by the increase since March 2010 in the overall medical care component of the Consumer Price Index for All Urban Consumers (CPI-U).

An Uptick in Obesity Disability Claims

medical symbolBy Josie Martinez, Senior Partner and Legal Counsel
EBS Capstone, A UBA Partner Firm

The American Medical Association (AMA) recently categorized obesity as a “disease” rather than a condition. While it’s commendable that the AMA is attempting to tackle the widespread obesity issue, the fallout of this determination is that employers may see more disability claims. Previously, it was thought that “normal” obesity was not protected under the Americans with Disabilities Act. However, this new re-classification complicates matters.  Now, obese employees may have additional protections in the workplace. Employers may need to consider reasonable accommodations for those with a body mass index of 30 or over. We may see more employees qualify for short-term disability benefits as a result of this new determination.  This could be costly across the board when you consider that according to the Centers for Disease Control and Prevention, the obesity rate has jumped nearly 50 percent since 1997. Currently, one- third of American adults are classified as obese, in addition to one- third being overweight. The new determination by AMA makes it easier for an obese employee to argue that he/ she is disabled.

But, not so fast: An important nuance to remember is that most claims examiners look at medically supported restrictions/limitations with respect to the employee’s job as a determinative factor when analyzing a claim’s credibility. Carriers will look at such things as the diagnosis, treatment and duration as well as any limitations on the job before a claim is approved.  So, if an overweight employee can prove restrictions or limitations on the job as a result of obesity, he/she could substantiate disability under their plan. That being said, whether it is a disease, condition or illness, it is not in and of itself determinant of benefits. The determinant to the receipt of disability benefits is whether the condition/ disease is so impairing that it prevents the person from performing material duties of his/ her occupation, as demonstrated by medical evidence. Functional impairment, therefore, is critical to the claim’s assessment.

At the end of the day, will there be an uptick in claims based on the AMA’s new classification of obesity as a recognized “disease”?  Probably – but in most cases, such claims will likely not be approved based only on obesity as a “disease.”  It will, however, likely mean increased demands on employers.

Health Care Reform and the Balloonist

Hot Air BalloonBy Mick Constantinou, Advisor, Employee Benefits
Connelly, Carlisle, Fields, & Nichols, A UBA Partner Firm

In preparation for a recent keynote addresse at the Benefits Mania Conference on Health Care Reform and New Paradigms in the Benefits Renewal Process, the most challenging piece was deciding on how to open the presentation.

Public Speaking 101 indicates that speakers should open with a joke, but was joking about the ACA appropriate or professionally safe?

After searching the web for humorous stories and jokes related to “change management” – which is essentially what employers, individuals and our industry must embrace – multiple hits came up on a similar allegory about a man (or woman) in a hot air balloon.  There were a variety of versions of the allegory making it impossible to credit the original author of the story – so thank you to whomever was the originator of the allegory.

Regardless of the knowledge or beliefs – religious, political, social and economic – that have established a person’s or group’s paradigm, the balloonist allegory was not only appropriate but hauntingly familiar.

A man in a hot air balloon realized he was lost. He reduced altitude and spotted a woman below. He descended a bit more and shouted, “Excuse me, can you help me? I promised I’d be somewhere, but I don’t know where I am.”

The woman below replied, “You’re in a hot air balloon hovering approximately 30 feet above the ground. You’re between 40 and 41 degrees north latitude and between 59 and 60 degrees west longitude.”

“You must be an engineer,” said the balloonist. “I am,” replied the woman. “How did you know?”

“Well,” answered the balloonist, “everything you told me is, technically correct, but I’ve no idea what to make of your information, and the fact is I’m still lost. Frankly, you’ve not been much help at all. If anything, you’ve delayed my trip.”

The woman below responded, “You must be in management.” “I am,” replied the balloonist, “but how did you know?”

“Well,” said the woman, “you don’t know where you are or where you’re going. You have risen to where you are due to a large quantity of hot air.  You made a promise which you’ve no idea how to keep, and you expect people beneath you to solve your problems. The fact is you are in exactly the same position you were in before we met, but now, somehow, it’s my fault.”

Also read The Tomato Paradox of Health Care Reform and The Tomato Paradox Part 2: What’s Left on the Vine.

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Happy and Well: Employee Wellness Under Obamacare

employee wellnessA recent article in Human Resource Executive Online shared a startling statistic: It takes about 16 years to realize a positive return-on-investment on employer-sponsored wellness programs. That’s a long time, and more importantly makes you wonder why we implement wellness programs at all? According to this article, it’s not so much about the health care dollars you gain back for your business with wellness programs, but more about how these initiatives can transform your company culture for the better.

Here’s a quick article excerpt:

“Edington believes wellness programs can’t save enough in healthcare costs to make a difference – ‘maybe $200 to $300, at best’ – but he thinks a wellness program can create shareholder value.

How? By increasing job satisfaction, happiness factors and creating a great place to work. By association, according to Edington, wellness programs raise employee loyalty, decreases turnover and increases creativity and productivity. And that’s good for the business’ bottom line.

Edington summarizes it this way: ‘Happiness [is] the new, ultimate metric.’”

While some may want to argue the concept of wellness program ROI, you can’t debate the fact that more than 75 cents of every health care dollar spent in the United States goes toward treating chronic diseases such as arthritis, asthma, cancer, cardiovascular disease and diabetes, according to the Centers for Disease Control and Prevention.

Regardless of an employer’s main reason for implementing a wellness program, it’s important to know the latest strategies when it comes to ensuring that they’re effective and PPACA-compliant.

Unum and United Benefit Advisors (UBA) are hosting two free webinars: “Health and Wellness and Employee Motivation: Making the Connection” on Aug. 27, 2013 at 2 p.m. ET, and “Legal Considerations When Developing an Employer-Sponsored Wellness Program” on Aug. 29, 2013 at 2 p.m. ET, that aim to address effective wellness program strategies and health care reform considerations.

 “Health and Wellness and Employee Motivation: Making the Connection” will prepare employee benefits and human resource managers to manage and consult upon the emerging issues related to the multigenerational workforce including productivity and motivation. The presentation examines the health care industry and its unique challenges in managing productivity due to the aging population, health reform, disengaged workers, and the need to mitigate the impact of the rising costs of healthcare among its own employees. To register, click here. Receive a $149 discount for this webinar, enter code UNUMUBA27 when registering.

To ensure that your wellness programs are PPACA-compliant, the webinar, “Legal Considerations When Developing an Employer-Sponsored Wellness Program,” will review new rules for wellness programs under health care reform. To register, click here. Receive a $149 discount for this webinar by entering the code UNUMUBA29 when registering.

Happy and Well: Employee Wellness Under Obamacare

wellnessA recent article in Human Resource Executive Online shared a startling statistic: It takes about 16 years to realize a positive return-on-investment on employer-sponsored wellness programs. That’s a long time, and more importantly makes you wonder why we implement wellness programs at all? According to this article, it’s not so much about the health care dollars you gain back for your business with wellness programs, but more about how these initiatives can transform your company culture for the better.

Here’s a quick article excerpt:

“Edington believes wellness programs can’t save enough in healthcare costs to make a difference – ‘maybe $200 to $300, at best’ – but he thinks a wellness program can create shareholder value.

How? By increasing job satisfaction, happiness factors and creating a great place to work. By association, according to Edington, wellness programs raise employee loyalty, decreases turnover and increases creativity and productivity. And that’s good for the business’ bottom line.

Edington summarizes it this way: ‘Happiness [is] the new, ultimate metric.’”

While some may want to argue the concept of wellness program ROI, you can’t debate the fact that more than 75 cents of every health care dollar spent in the United States goes toward treating chronic diseases such as arthritis, asthma, cancer, cardiovascular disease and diabetes, according to the Centers for Disease Control and Prevention.

Regardless of an employer’s main reason for implementing a wellness program, it’s important to know the latest strategies when it comes to ensuring that they’re effective and PPACA-compliant.

Unum and United Benefit Advisors (UBA) are hosting two free webinars: “Health and Wellness and Employee Motivation: Making the Connection” on Aug. 27, 2013 at 2 p.m. ET, and “Legal Considerations When Developing an Employer-Sponsored Wellness Program” on Aug. 29, 2013 at 2 p.m. ET, that aim to address effective wellness program strategies and health care reform considerations.

 “Health and Wellness and Employee Motivation: Making the Connection” will prepare employee benefits and human resource managers to manage and consult upon the emerging issues related to the multigenerational workforce including productivity and motivation. The presentation examines the health care industry and its unique challenges in managing productivity due to the aging population, health reform, disengaged workers, and the need to mitigate the impact of the rising costs of healthcare among its own employees. To register for this webinar, visit http://tinyurl.com/n4olw4s. Receive a $149 discount for this webinar, enter code UNUMUBA27 when registering.

To ensure that your wellness programs are PPACA-compliant, the webinar, “Legal Considerations When Developing an Employer-Sponsored Wellness Program,” will review new rules for wellness programs under health care reform. To register, visit: http://tinyurl.com/n2yca7h. Receive a $149 discount for this webinar by entering the code UNUMUBA29 when registering.

The Real Story on Out-of-Pocket Maximums

describe the imageBy Linda Rowings
Chief Compliance Officer
United Benefit Advisors

Last week several media outlets picked up a FAQ that the Department of Labor issued in February of this year. (The FAQ may be accessed here: FAQs About Affordable Care Act Implementation Part XII.)  Some of the reports have created confusion about the requirement, and the scope of what has been delayed; here is a summary of the rules:

Beginning in 2014, all non-grandfathered plans (whether fully insured or self-funded, and regardless of size) must have an out-of-pocket maximum that does not exceed $6,350 for single coverage and $12,700 for family coverage.  The out-of-pocket maximum includes the deductible, coinsurance and copays.  It may exclude out-of-network charges and excluded charges.

In response to industry comments that it would be difficult to integrate different vendors’ systems by 2014, the FAQ provides that if a plan uses different providers for medical and prescription drugs, it will not be required to integrate out-of-pocket maximums for 2014.  Instead, simply ensuring that the medical benefit meets the out-of-pocket maximum will suffice.  (Plans that have a common medical and Rx vendor are expected to apply both medical and Rx charges to a common out-of-pocket maximum.)  Because of existing rules under the Mental Health Parity Act, plans that use a separate vendor for mental and nervous disorder coverage should already have an integrated out-of-pocket maximum for medical and mental and nervous coverage, and the transition rule does not apply to this situation.