Grandfathered Plans – Slightly More Flexibility to Increased Fixed Cost-Sharing

Last week, the agencies released final rules which may increase the ability for employers to increase cost-sharing under their group health plans without jeopardizing grandfathered status. You can find the agency news release, along with a link to the final rules, here: https://www.dol.gov/newsroom/releases/ebsa/ebsa20201211.

Grandfathered plans are not required to comply with some of the requirements under the ACA (e.g. preventive coverage with no cost-sharing and OOP maximums). We see employers hold on to grandfathered status to avoid providing coverage for things such as contraceptives or to avoid the OOP maximums. However, to maintain grandfathered status, the employer must avoid making certain changes to the plan that was in place as of March 23, 2010 when the ACA went into effect. The following six changes cause a plan to lose grandfathered status:

  • Elimination of all or substantially all benefits to diagnose or treat a particular condition;
  • Increasing an individual’s percentage of cost-sharing (e.g. coinsurance);
  • Increasing a deductible or OOP maximum by an amount that exceeds medical inflation + 15%;
  • Increasing a copay by an amount that exceeds the greater of medical inflation + 15% or $5;
  • Decreasing an employer’s contribution rate toward the premium by more than 5%; or
  • Imposition of annual limits on the dollar value of benefits below the amounts outlined in the interim final regulations.

The final rules adjust the ability to increase fixed cost-sharing (i.e. increasing deductibles, OOP maximums or copays). The agencies expressed a desire for grandfathered plans to be able to hold onto grandfathered status while also being able to make cost-sharing adjustments to reflect cost of coverage increases. For plan changes made after June 15, 2021, the following increases to fixed cost-sharing are permitted:

  1. Plans that are high deductible health plans (HDHPs) may increase the deductible or OOP maximum without causing a loss of grandfather status, but only to the extent such changes are necessary to meet the requirements for a qualifying HDHP (i.e. minimum deductible and maximum OOP requirements).  
  2. Fixed cost-sharing is permitted to the extent that the maximum percentage increase doesn’t exceed the greater of:
    • Medical inflation + 15% (or $5 for a copay, if greater); OR
    • The premium adjustment percentage + 15% (or $5 for a copay, if greater).

The biggest change is the option to calculate the limit on increases to fixed cost-sharing using the premium adjustment percentage published annually by HHS rather than medical inflation (i.e. the CPI-U published by the DOL).  The “premium adjustment percentage” is the percentage by which the average per capita premium for health insurance coverage for the preceding calendar year exceeds such average per capita premium for health insurance for 2013. “Medical inflation” means the increase since March 2010 in the overall medical care component of the CPI-U, which is a measure of the average change over time in the prices paid by urban consumers for medical care. Some argue the premium adjustment percentage better reflects the change in the cost of coverage for group health plans.

The additional flexibility around fixed cost-sharing increases has only a prospective effect. Plans that make (or already made) changes prior to June 15, 2021 resulting in a loss of grandfathered status cannot regain grandfathered status. However, grandfathered plans will be able to take advantage of these changes beginning in mid-2021.