FAQs on Grandfathered Plans and Essential Health Benefits

The Affordable Care Act (ACA), which was enacted on March 23, 2010, included many changes related to health care coverage and raised a number of questions for employers. The Department of Labor (DOL) issued several sets of Frequently Asked Questions (FAQs) to assist in implementing these changes. On Nov. 1, 2010, the DOL issued FAQs regarding grandfathered plans and essential health benefits.

ACA Implementation FAQs – Part IV

Q1: The Departments’ interim final grandfather regulations provide that, to maintain status as a grandfathered health plan, a group health plan or health insurance coverage must include a statement, in any plan materials provided to a participant or beneficiary describing the benefits provided under the plan or health insurance coverage, that the plan or coverage believes it is a grandfathered health plan. Mus a grandfathered health plan provide the disclosure statement every time it sends out a communication, such as an EOB (explanation of benefits), to a participant or beneficiary? If not, how does a grandfathered health plan comply with this disclosure requirement?

A grandfathered health plan will comply with this disclosure requirement if it includes the model disclosure language provided in the Departments’ interim final grandfather regulations (or a similar statement) whenever a summary of the benefits under the plan is provided to participants and beneficiaries. For example, many plans distribute summary plan descriptions upon initial eligibility to receive benefits under the plan or coverage, during an open enrollment period, or upon other opportunities to enroll in, renew, or change coverage. While it is not necessary to include the disclosure statement with each plan or issuer communication to participants and beneficiaries (such as an EOB), the Departments encourage plan sponsors and issuers to identify other communications in which disclosure of grandfather status would be appropriate and consistent with the goal of providing participants and beneficiaries information necessary to understand and make informed choice regarding health coverage.

Q2: If an individual health insurance policy that was in place on March 23,2010, included a feature that allowed a policy holder to elect an option under which he or she would pay a reduced premium in exchange for higher cost sharing, could such an election be made after March 23 without affecting the policy’s grandfather status even if the increase in cost sharing for the individual would exceed the limits under the grandfather rule on increase in cost sharing?

Yes. The cost-sharing level that would apply under this option would be grandfathered as part of the policy in place on March 23,2010, even if it did not apply for the particular individual at that time. As long as the policy holder had that option available on March 23 under the policy, he or she could exercise the option after March 23 without affecting  grandfather status, even if the result would be that the particular individual’s cost-sharing would increase as a result of electing this option by an amount in excess of the grandfather rule limits.

Q3: An employer has maintained a plan since before enactment of the ACA that reimburses expenses for special treatment and therapy of eligible employees’ children with physical, mental or developmental disabilities. The treatment or therapy is not covered by the employer’s primary medical plan or plans. Reimbursable expenses may include expenses for special treatment or therapy from licensed clinics or practitioners, day or residential special care facilities, special education facilities for learning-disable children, or camps offering medically oriented programs that are part of a child’s continued treatment, or for special devices. The plan is operated separately from the employer’s primary medical plans; employees who are otherwise eligible may participate in the plan without participating in those primary medical plans. The plan limits the total benefits for any eligible child to a specified lifetime dollar limit.

Would it be a reasonable good faith interpretation of the ACA and the regulations thereunder for the plan sponsor to take the position that the plan does not violate the prohibition, under Section 2711 of the Public Health Service Act (PHS Act) and the related interim final regulations, on imposing a lifetime dollar limit on “essential health benefits,” as defined in Section 1302(b) of the ACA (the lifetime limit prohibition)?

Yes. In accordance with the preamble to the Departments’ interim final regulations implementing PHS Act Section 2711, for plan years beginning before the issuance of final regulations defining “essential health benefits,” for purposes of enforcement, the Departments will take into account good faith efforts to comply with a reasonable interpretation of the term “essential health benefits.” (Of course, the regulations may differ in their definition of “essential health benefits” from reasonable interpretations used before the regulations are issued.) Accordingly, in the case of plans described above, for such plan years:

  • The Departments will treat as a reasonable good faith interpretation of PHS Act Section 2711 and the regulations thereunder the position that the imposition of the per-child lifetime dollar limit on benefits provided under such plans does not violate the lifetime limit prohibition; and
  • The imposition by such plans of such a limit will not result in an enforcement action by the Departments against such plans under PHS Act Section 2711.

Update: Effective for plan years beginning on or after Jan. 1, 2014, health plans in the individual and small group markets must provide the essential health benefits package. This requirement does not apply to grandfathered plans, self-funded plans or plans offered in the large group market. However, these plans are prohibited from imposing annual and lifetime dollar limits on the essential health benefits they do cover.

In February 2013, the Department of Health and Human Services (HHS) finalized a benchmark approach for defining the essential health benefits package. Under this approach, each state may select a benchmark insurance plan from an array of options. The items and services included in the selected benchmark insurance plan comprise the essential health benefits package in that state.

In order to determine which benefits are essential health benefits for the purpose of removing annual and lifetime dollar limits, a self-insured group health plan, large group market health plan, or grandfathered group health plan may choose any benchmark plan from any state that was approved by HHS.