Regulations Provide Cost-Sharing Change Flexibility for Grandfathered Health Plans

The DOL, IRS, and HHS have issued regulations to provide greater flexibility for grandfathered group health plan sponsors and insurers to make certain cost-sharing changes without causing a loss of grandfather status. Grandfathered plans are group health plans (or health insurance coverage) that have continuously provided coverage since March 23, 2010, and have not undergone certain prohibited design changes since then. These plans are excused from some Affordable Care Act (ACA) mandates, such as coverage of preventive health services without cost-sharing and the expanded appeals process, although they are subject to other ACA requirements (see our Checkpoint Question of the Week). Grandfathered status can be maintained indefinitely, so long as certain requirements are met. Among other things, the arrangement must continue to cover at least one person, and certain changes to the plan’s cost-sharing requirements are prohibited.

Earlier this year, the agencies proposed amendments (see our Checkpoint article) to existing regulations (see our Checkpoint article) that permit grandfathered plans to increase fixed-amount cost-sharing provisions (e.g., copayments, deductibles, and out-of-pocket maximums) so long as certain thresholds are not exceeded, determined using a Consumer Price Index medical inflation measure (medical CPI-U). The agencies have now finalized the proposed regulations without substantive change. The final regulations are applicable to grandfathered group health plans and grandfathered group health insurance coverage beginning on June 15, 2021. Here are highlights:

• High-Deductible Health Plans (HDHPs). Grandfathered HDHPs may increase their fixed-amount cost-sharing without losing grandfathered status, if the increase is necessary to maintain HDHP status. Although the annual cost-of-living adjustment to the required minimum HDHP deductible has not yet exceeded the threshold that would cause loss of grandfathered status (see our Checkpoint article), grandfathered HDHPs will be able to increase their cost-sharing to meet a future minimum deductible adjustment without losing grandfathered status.
• Alternative Inflation Adjustment. Grandfathered health plans may determine cost-sharing increases, in part, by reference to the greater of the medical CPI-U or the most recently published annual premium adjustment percentage, which is used to set the rate of increase for certain ACA parameters (see our Checkpoint article). The agencies anticipate that the premium adjustment percentage index will continue to grow faster than the medical CPI-U, so the alternative method will give grandfathered plans the flexibility to make cost-sharing changes that would otherwise result in a loss of grandfathered status.

EBIA Comment: Although the number of grandfathered plans has declined each year since the ACA was enacted, the agencies have concluded that some employers, insurers, and participants continue to find value in grandfathered plans. The economic impact analysis included with the final regulations estimates that 400,000 firms sponsor ERISA-covered plans that are grandfathered or include a grandfathered benefit package option, and that these plans cover 19.1 million participants and beneficiaries. For more information, see EBIA’s Health Care Reform manual at Section VI (“Grandfathered Health Plans”) and EBIA’s Consumer-Driven Health Care manual at Section X (“HSAs: Required HDHP Coverage”).

Contributing Editors: EBIA Staff.