On November 15, three agencies of the Obama Administration issued amendments to their June 2010 interim final implementing regulations regarding ‘grandfathering’ rules with respect to group health plans and health insurance coverage in the group and individual markets under provisions of the Patient Protection and Affordable Care Act.  The amendment clarifies and extends the scope of permitted changes in policies, certificates or contracts of insurance without loss of grandfathered status. 

The amendments are effective as of November 15.  However, comments are requested by December 17 and will be considered to determine if additional changes are required in a future final rule.

The amended rule responds to many critical comments the agencies received regarding the their original “grandfathered” plan provisions, including the need for some employers to change insurance companies due to cost or outside factors.   Under the amended rule, an employer may change the insurance company and not lose grandfathered status as long as the employer does not violate one of the six rules for maintaining grandfathered status.  These include:

1. Elimination of all or substantially all benefits to diagnose or treat a particular condition
2. Increase in a percentage cost-sharing requirement (e.g., raising an individual’s coinsurance requirement from 20% to 25%).
3. Increase in a deductible or out-of-pocket maximum by an amount that exceeds medical inflation plus 15 percentage points.
4. Increase in a copayment by an amount that exceeds medical inflation plus 15 percentage points (or, if greater, $5 plus medical inflation).
5. Decrease in an employer’s contribution rate towards the cost of coverage by more than 5 percentage points.
6. Imposition of annual limits on the dollar value of all benefits below specified amounts

The new grandfathered plan rule does not address the issue of helping small and medium employers make plan changes without the safety net of the state exchanges. The rule itself notes that the change is likely to have little impact on the number of companies that maintain grandfathered status; the original regulation noted that over 50 percent of employer plans would lose grandfathered status within the next three years.

Additional amendments are anticipated by early 2011.