With the recent signing by President Obama of the Patient Protection and Affordable Care Act of 2010 (the "PPACA") and the Health Care and Education Reconciliation Act of 2010 (the "Reconciliation Act") (collectively the "Health Care Reform Act"), employers are eager to understand the impact on their existing plans and the applicable grandfathering provisions. In order to assist employers with understanding their obligations under the Health Care Reform Act, set forth below is a discussion of what qualifies as a grandfathered plan under the Health Care Reform Act and the available exemptions.

Definition of Grandfathered Plan

In general for purposes of the Health Care Reform Act, a grandfathered health plan ("Grandfathered Plan") is:

  • an employer- or employer-organization-sponsored group health plan*
  • that provides medical care, through insurance, reimbursement or otherwise, and
  • as in existence as of March 23, 2010.

Grandfathered Plans will be able to maintain this status indefinitely, even if certain additional individuals are permitted to enroll or if certain permitted changes are made. Specifically, the Health Care Reform Act provides that the following will not disqualify a Grandfathered Plan for current or future participants:

  • Renewal and modification of coverage offered under the Grandfathered Plan after March 3, 2010; however, it is not clear at this time whether certain modifications may result in the loss of Grandfathered Plan status
  • Enrollment of family members in the Grandfathered Plan, as long as family members were permitted to enroll in the Grandfathered Plan prior to March 23, 2010
  • Enrollment of new employees in the Grandfathered Plan

Collectively bargained plans that were negotiated prior to March 23, 2010 will not be subject to the health care and health insurance market reform provisions of the Health Care Reform Act until the date on which the last of the collective bargaining agreements relating to the coverage terminates. As of that date, assuming the collectively bargained plan qualifies as a Grandfathered Plan, the collectively bargained plan will be required to comply with the health care and health insurance market reform provisions applicable to Grandfathered Plans discussed below. In addition, the Health Care Reform Act provides that amendments to a collective bargaining agreement to comply with certain provisions of the Health Care Reform Act will not constitute a termination of the collective bargaining agreement.

Application of Health Care and Health Insurance Market Reforms to Grandfathered Plans

In general, while the PPACA provides that group health plans will be subject to the applicable health care and health insurance market reforms, it includes an exception for Grandfathered Plans. (For more information on the health care and health insurance market reforms provisions of the Health Care Reform Act, see the Reed Smith Client Alert, the Patient Protection and Affordable Care Act [add link]). To confuse matters, however, the Reconciliation Act amended this exception to provide that Grandfathered Plans will be subject to certain of the PPACA's health care and health insurance market reforms. The end result is that under the Health Care Reform Act, Grandfathered Plans are required to comply with the following health care and health insurance market reforms:

  • No lifetime limit and restrictions on annual limits
  • No rescissions of coverage
  • Extension of dependent coverage
  • Prohibition on preexisting condition exclusions
  • Prohibition on excessive waiting periods
  • Requirement to provide uniform explanation of coverage document and 60 days' notice of modifications

Grandfathered Plans must comply with the provisions regarding lifetime limits, restrictions on annual limits, rescissions of coverage, and preexisting condition exclusions for dependents under the age of 19, as of the first day of the plan year that occurs six months after March 23, 2010 (January 1, 2011 for a calendar year plan). In addition, as of this date, Grandfathered Plans will have to provide coverage for dependents who are not eligible to enroll in an employer-sponsored plan until age 26. The provisions regarding the general prohibition on preexisting condition exclusions, dependent coverage for any adult dependent until age 26, and excessive waiting periods, will apply January 1, 2014. Also as of January 1, 2014, Grandfathered Plans will be prohibited from imposing annual limits. Finally, in general, the requirements regarding uniform explanations of coverage will become effective March 23, 2013.

Despite the changes made by the Reconciliation Act, Grandfathered Plans will be exempt from complying with the other health care and health insurance market reform provisions of the PPACA, including:

  • Coverage of preventive services
  • Application of Internal Revenue Code Section 105(h) nondiscrimination tests to insured group health plans
  • Ensuring quality of care, including quality reporting requirements
  • Effective appeals process for the appeal of coverage determination and claims
  • Patient protections, including choice of health care professional and coverage of emergency services
  • Prohibiting discrimination against individual participants and beneficiaries based on health status
  • Coverage for approved clinical trials
  • Limits on cost sharing

Whether an employer sponsors a Grandfathered Plan, however, will not impact the Health Care Reform Act's individual and employer mandates. For example, individuals who participate in their employer's Grandfathered Plan will be subject to the individual coverage mandate provisions, and employers that sponsor Grandfathered Plans will be required to comply with the Health Care Reforms Act's coverage mandates, free-choice voucher requirements, and automatic enrollment provisions.

The rules regarding Grandfathered Plans are complex. If you have questions about the rules applicable to Grandfathered Plans, or the Health Care Reform Act in general, please contact your Reed Smith attorney or one of the attorneys listed below.

* Grandfathered Plan also includes health insurance coverage, which means benefits consisting of medical care under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer. However, a discussion of the term Grandfathered Plans as it applies to non-employer-provided coverage is beyond the scope of this benefits alert. Accordingly, this alert only discuses the meaning of the term Grandfathered Plan as it applies to group health plans.

This article is presented for informational purposes only and is not intended to constitute legal advice.