grandfathered health plan

What rule changes apply to grandfathered group plans?

In order to retain grandfathered status, a plan cannot have been substantially changed since the ACA was enacted, and there are limits on how much cost-sharing can increase and how benefits can change.

In February 2019, the Departments of the Treasury, Labor, and Health & Human Services published a request for comments on whether there should be rule changes to make it easier for employer-sponsored grandfathered plans to retain their grandfathered status going forward. As of 2020, about 14% of workers with employer-sponsored health plans were enrolled in grandfathered plans. (The request for comments did not pertain to individual market grandfathered health plans, and the subsequent rule changes do not either.)

So it was not surprising when the Trump administration published a proposed rule in July 2020 that included two modifications that would make it easier for employer-sponsored grandfathered plans to make changes to their coverage and still retain their grandfathered status. The administration accepted public comments on the proposed rule changes through mid-August, but received just 13 comments. The proposed rule was finalized in December 2020 with very few modifications, although the effective date was pushed out to June 15, 2021:

• The first modification allows HSA-qualified grandfathered group plans to increase cost-sharing as necessary in order to conform to IRS requirements for HDHPs:
  • The IRS sets the rules for HDHPs, and they are indexed annually. As of 2021, there has never been a year when the IRS-mandated increase in minimum deductibles for HDHPs exceeded the allowable cost-sharing increases for grandfathered plans, but the new rule change will ensure that grandfathered employer-sponsored HDHPs can continue to be HSA-qualified even if that situation were to arise.
  • The plans have explicit permission to raise deductibles as necessary in order to conform to IRS rules (so that enrollees could continue to contribute to their HSAs) and still retain their grandfathered status, even if the necessary deductible increase were to exceed the normal requirements for grandfathered plans.
• The second modification allows employer-sponsored grandfathered plans to potentially increase cost-sharing (copays, deductibles, out-of-pocket maximum) more than was previously allowed, without losing their grandfathered status:
  • The previous rules allowed grandfathered plans to increase cost-sharing by an amount equal to medical inflation since March 2010 plus up to 15 percentage points.
  • The new rule allows employer-sponsored grandfathered plans the option to base cost-sharing increases on how much the premium adjustment percentage increases each year, plus 15 percentage points.
  • The premium adjustment percentage is updated by HHS each year, and they changed the formula in 2020 to incorporate the change in individual market premiums. This resulted in a premium adjustment percentage that was larger than it would otherwise have been. Under the newly finalized rule, cost-sharing amounts on grandfathered group plans were expected to potentially be about 3 percentage points higher by 2026 than they would otherwise have been.
  • However, the Biden administration subsequently reversed the 2020 rule change for the premium adjustment percentage, resetting it to the way it had been prior to 2020. So although the rules do currently allow employer-sponsored grandfathered plans to choose either option for calculating allowable inflation adjustment for cost-sharing, the increased cost-sharing that had been expected under the new rule is not likely to occur.

The rule changes do not apply to grandfathered plans in the individual/family market, but the vast majority of grandfathered plans are in the group market, where the rule changes do apply. But again, especially with the newly revised guidance on how the premium adjustment percentage is calculated, the updated rules for cost-sharing modifications on employer-sponsored grandfathered plans are unlikely to have a dramatic impact.