The Departments of Labor, Treasury, and Health and Human Services have issued final regulations expanding the flexibility of grandfathered group health plans and grandfathered group health insurance coverage to make changes to cost-sharing requirements, without causing loss of grandfathered status. The guidance is in response to Presidential Executive Order 13765, “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal,” which required agencies to minimize what the order described as “unwarranted” economic and regulatory burdens imposed by the Affordable Care Act (ACA). The final regulations are effective January 13, 2021, and are applicable June 15, 2021.
Pursuant to the ACA, a group health plan in existence as of March 23, 2010, was grandfathered if it continuously provided coverage at all times since enactment of the ACA, and the group health plan had not taken actions to relinquish its status. Grandfathered health plans are not required to comply with various provisions of the ACA, including coverage of essential health benefits or preventive services without cost-sharing. Pursuant to 2015 regulations, a group health plan could lose its grandfathered status as a consequence of one of the following changes.
- Elimination of all, or substantially all, benefits for diagnosis or treatment of a particular condition
- Increase in a cost-sharing percentage
- Increase in a fixed-amount cost-sharing requirement that exceeds certain thresholds
- Increase in a fixed-amount copayment that exceeds certain thresholds
- Decrease in contribution rate by an employer or employee organization toward the cost of coverage by more than 5 percentage points
- Imposition of annual limits on the dollar value of all benefits for group health plans and insurance coverage
These final regulations generally preserve the 2015 regulations, but introduce two changes. First, a grandfathered group health plan that is a high deductible health plan (HDHP) is able to modify the fixed-amount cost-sharing requirements as necessary to comply with the requirements applicable to HDHPs contained in Internal Revenue Code Section 223(c)(2). The final regulations address concerns that HDHP deductibles could potentially exceed the permitted cost-sharing threshold, and either 1) cause a group health plan to lose its grandfathered status, or 2) cause a grandfathered group health plan to lose its status as an HDHP.
Second, these final regulations introduce an alternative method to calculate the “maximum percentage increase” for determining the permitted change based on a premium adjustment percentage. Pursuant to the 2015 regulations, group health plans use a medical cost inflation percentage measured in accordance with the Consumer Price Index for Urban Consumers. The final regulations offer an alternative formula that yields a higher dollar value to maintain compliance with the ACA, that is expected to be easier to administer and offer a clearer measure of change. Finally, the final regulations provide 11 examples to illustrate the alternative method to calculate the maximum percentage increase.