The Departments of Labor, Health and Human Services, and the Treasury (collectively, the Departments) recently issued proposed regulations that would modify what types of changes a group health plan (GHP) or health insurance coverage can make without losing grandfathered status under the Patient Protection and Affordable Care Act (ACA). The proposed regulations are intended to give grandfathered GHPs and insurance coverage greater flexibility when changing cost-sharing requirements without losing their grandfather status. The proposed regulations are scheduled to be published on July 15, 2020, after which there will be a 30-day comment period before the final regulations can be issued. Because the proposed regulations are in response to the Departments’ February 2019 request for information regarding ways that the 2015 final regulations could be amended to allow greater flexibility, it is unlikely that the final regulations will deviate much from the proposed regulations. Once the final regulations are issued, they will be effective 30 days after they are published.
Grandfathered GHPs and coverage are not required to comply with certain provisions of the ACA, such as the requirement to cover certain preventative services without cost sharing and the annual limitation on cost sharing. To maintain grandfather status, the coverage provided by a GHP or insurance must be substantially the same as the coverage existing on March 23, 2010, the date the ACA was enacted. Under current regulations issued in 2015, the following changes will cause the loss of grandfather status, including:
- The elimination of benefits;
- Increasing percentage cost-sharing requirements (e.g., coinsurance);
- Increasing fixed amount cost-sharing requirements (e.g., deductibles, out-of-pocket maximums, and copayments) by more than the “maximum percentage increase” (i.e., the rate of medical inflation plus 15 percentage points);
- Decreasing contribution rates by employers; and
- Imposing an overall annual or lifetime limit on the dollar value of benefits.
Cost-Sharing Adjustments for Grandfathered High Deductible Health Plans (HDHPs)
HDHPs are subject to minimum annual deductible requirements and maximum out-of-pocket expenses under the Internal Revenue Code (Code). For 2020, deductibles must be at least $1,400 for an individual or $2,800 for a family and out-of-pocket expenses cannot exceed $6,900 for an individual or $13,800 for a family. The annually updated deductible and out-of-pocket limits under the Code have not yet exceeded the rate of increases that would cause the loss of grandfathered status, but could in the future. The special rule in the proposed regulations for grandfathered HDHPs provides that increases to fixed-amount cost-sharing requirements (i.e., deductibles and out-of-pocket amounts) that otherwise would cause a loss of grandfather status will not cause a loss of grandfather status if the increases are necessary to comply with the annually updated deductible and out-of-pocket limits under the Code. This is great news for grandfathered HDHPs.
Alternative Medical Inflation Measurement
Fixed amount cost-sharing requirements (i.e., deductibles, out-of-pocket amounts, and copayments) are generally allowed to increase by the “maximum percentage increase” without losing grandfather status while copayment increases are subject to a special rule. The maximum percentage increase is determined by adding 15 percentage points to the rate of medical inflation determined by the medical care component of the Consumer Price Index (CPI).
Once the new proposed regulations become final, a grandfathered GHP or insurance coverage may determine the maximum percentage increase using the “premium adjustment percentage” regularly published by the Department of Health and Human Services instead of using the CPI to establish medical inflation costs. The premium adjustment percentage is a measure of premium growth used throughout the ACA and many believe it more accurately measures the inflationary costs of health care services. The CPI and premium adjustment percentage are regularly updated so which measurement will allow the larger increase to a plan’s cost-sharing requirements will change over time. If the premium adjustment percentage could be used currently, it would allow a roughly 1.3% greater increase than the current rule which relies on medical inflation determined using CPI.