Grandfathering - Everything You Need to Know

Since the passing of the health care reform legislation in late March, a key question has been lingering for employers and plan sponsors - what constitutes a "grandfathered" plan?

Late last Thursday we received the Department of Labor, Treasury and Health and Human Services Joint Release of the Interim Final Rules on Allowable Plan Modifications by Grandfathered Plans (view full document). The key elements of the document can be found on pages 70-83.

The document we have provided as a link above is a draft and by no means should be deemed as final regulations at this time.  We do believe while it has not been finalized the source is reliable as various news outlets and congressional websites support the document. We will update you accordingly once the final rules are released.

Legal experts, compliance teams and those in the advisor community are working to digest and interpret these final rules. Our own Mark Sherman, in an attempt to make some sense of the Interim Final Rules (and provide some levity) offers the following interpretation:

Thanks to our HCR friends, we now have more clarity on how to keep "grandfathered plans" (a.k.a. Grandpa) alive and what "do not resuscitate" provisions can be included. They are as follows:

1. Grandpa must proclaim to all his heirs (and be able to prove if asked) that he is, in fact, our Grandpa (a.k.a. disclosure of grandfather status required).
2. The Grandpa proclamation can be done using a "Who's Your Grandaddy" card now available at neighborhood drug stores and card shops (a.k.a. model language has been provided).
3. Grandpa is not allowed to divorce Grandma (a.k.a. can't change insurance carriers if you are fully insured).
4. Grandpa is allowed to add heirs to his will, but they must be direct descendants, including through adoption (a.k.a. new employees can join a health plan, including joining by being moved from other health plans in certain circumstances).
5. Grandpa is now allowed to sell off or give away assets currently in his estate (a.k.a. can't eliminate existing benefits).
6. Grandpa can't change the share each heir is to receive (a.k.a. can't change the cost sharing coinsurance percentage).
7. Grandpa is allowed to change how much he spends for birthdays, holidays, college tuition support and/or family vacations...but only within reason and only if the same change is made for all applicable heirs (a.k.a. can increase co-pays, deductibles, out-of-pocket limits and employee contributions, but caps have been proscribed and math is required).