Public comments about the grandfathered-status rule in the Patient Protection and Affordable Care Act (PPACA) prompted regulators to amend the interim rules so some employers can change carriers without losing grandfathered status.
Officials from the Departments of Health and Human Services, Labor, and the Treasury issued an amendment that lets an employer offer the same health coverage through a different insurer while retaining grandfathered status, provided the change does not cause a significant increase in member cost or a meaningful reduction in benefits.
The amendment applies only to insured group health plans; employers that change coverage outside the employer’s group plan may still lose grandfathered status. For background on employer obligations and related workplace coverage issues, see Workers Compensation Law and Health Care Reform.
Before the amendment, plans could lose grandfathered status if a plan design change increased member cost or reduced benefits. Employer groups were also treated as losing grandfathered status when they changed insurers regardless of whether benefits stayed the same.
Federal regulators expect the amendment will result in a small increase in the number of plans that can maintain grandfathered status, because it removes a barrier that previously forced employers to remain with a single carrier for fear of losing grandfathering.
Regulators' reasons
- Self-insured plans often change third-party administrators for administrative reasons without altering cost or benefits; regulators wanted parity so insured employers could make similar administrative changes without penalty.
- Requiring employers to stay with a particular insurer can give that insurer excessive leverage during renewal negotiations.
- The amendment provides flexibility when an insurer stops offering coverage in a market or when a company experiences a change in ownership, allowing continued grandfathered status in those circumstances.
Because the amendment affects only insured group plans, employers with self-funded plans should confirm whether proposed contract changes are limited to third-party administrator arrangements or would trigger loss of grandfathered status.
For practical guidance on updating benefits while minimizing disruption to a grandfathered plan, consider resources on benefits program changes such as Transforming Health Benefits Programs.
If you need help interpreting how a carrier change affects your plan, speak with your benefits advisor or talk to an agent about the specific situation.
Frequently Asked Questions
What does "grandfathered status" mean for a health plan?
Grandfathered status means a health plan is exempt from certain PPACA requirements because it existed on the law’s effective date and has not made disqualifying changes to cost or benefits.
Which plans can use this amendment to change carriers?
The amendment applies to insured group health plans that move coverage to a new insurer without significantly increasing member cost or reducing benefits.
Do self-funded plans get the same protection?
No. Self-funded plans are generally limited to changing third-party administrators without losing grandfathered status; changing how coverage is provided may result in loss of grandfathering.
What should an employer check before switching carriers?
Employers should verify that the new insurer’s plan does not significantly increase member cost or reduce benefits and should document the comparison to support continued grandfathered status.