Agencies Propose Rule to Increase Flexibility for Grandfathered Group Health Plans
July 21, 2020
On July 10, 2020, the DOL, HHS and IRS released a proposed rule to amend certain requirements for grandfathered group health plans seeking to maintain their grandfathered status. The proposal is designed to provide such plans greater flexibility to make changes with respect to fixed-amount cost-sharing increases, including those necessary to maintain HDHP status.
As background, the ACA permits certain group health plans that existed as of the law’s enactment on March 23, 2010, to be treated as grandfathered health plans. By such treatment, the plans are exempt from some of the ACA’s mandates. However, to preserve such status, these plans are limited in their ability to alter the plan design or increase cost sharing.
The proposal follows a public request for information by the agencies on February 25, 2019. This request was designed to gather feedback as to whether the existing 2015 grandfathered plan rules could be modified to better assist plan sponsors responding to rising healthcare costs, while maintaining affordability for employees.
Under the current regulations, increases for fixed-amount cost sharing other than copayments (e.g., deductibles and out-of-pocket maximums) cannot exceed thresholds determined by the Consumer Price Index (CPI) measure of medical inflation. However, this component of the CPI index includes not only prices for private insurance, but also self-pay patients and Medicare, which would not be reflected in group health plan costs.
Accordingly, the proposed rule provides the alternative method of measuring permitted increases in such fixed-amount cost sharing by using the premium adjustment percentage published each year by HHS in the annual notice of benefit and payment parameters. The premium adjustment percentage reflects the cumulative historic growth from 2013 through the preceding calendar year in premiums for private health insurance. Therefore, this measure is viewed as more accurately reflecting the cost increases for grandfathered group health plans than the CPI measure.
The proposal does not eliminate use of the CPI index, but rather allows an employer to use the method that yields the greater result. Therefore, the increases to non-copay fixed-amount cost-sharing for grandfathered group health plans could not exceed the greater of the CPI measure of medical inflation percentage or the applicable premium adjustment percentage, plus 15 percentage points.
In addition, the proposal clarifies that a grandfathered group HDHP may increase fixed-amount cost-sharing requirements, such as deductibles, to the extent necessary to maintain their HDHP status without losing grandfathered status. This change was initiated to ensure that participants enrolled in that coverage remain eligible to contribute to an HSA.
Employers who sponsor grandfathered plans should be aware of these developments. The agencies are accepting public comments on the proposal through August 14, 2020. The proposed changes would become effective 30 days following the publication of a final rule and would not have retroactive effect.
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