The Department of Health and Human Services (HHS), in conjunction with the Departments of Labor and the Treasury, released a proposed rule for grandfathered group health plans and grandfathered group health insurance coverage. The agencies believe that the proposals in this rule would provide greater flexibility for these plans to make changes to some cost-sharing requirements without losing their grandfather status. The proposals do not apply to grandfathered individual health insurance coverage.

This rule also comes in response to an executive order issued at the beginning of the Trump administration as well as a request for information (RFI) released by the agencies in 2019.

Comments on the proposed rule are due on August 14, 2020.

Grandfathered health plans are subject to some, but not all provisions of the Affordable Care Act (ACA). For example, these plans are not subject to requirements on coverage of preventive services without cost sharing or annual limits on cost sharing set forth by the ACA. Under existing regulation, group health plan or insurance coverage is generally considered grandfathered if it has continuously provided coverage since March 23, 2010 and if the plan or issuer has not taken certain actions. Plans that lose grandfather status do, however, have to comply with the ACA provisions.

Certain changes to benefits, cost-sharing requirements, and contribution rates are among the six actions that may cause loss of grandfather status. Of interest for this proposed rule is the fixed-amount cost-sharing requirement; if changes to this requirement exceed a certain threshold, the plan would lose grandfathered status. Fixed-amount cost-sharing amounts, however, can be raised to reflect healthcare costs increases, but this raise cannot exceed the maximum percentage increase. A 2015 final rule tied the maximum percentage increase to medical inflation. For fixed-amount copayments, the increase cannot exceed the greater of the maximum percentage increase of five dollars increased by medical inflation.

This rule proposes changes to existing regulations governing grandfathered plans in two ways:

• Specify that grandfathered group health plans and grandfathered health insurance coverage that are high deductible health plans (HDHPs) may make changes to fixed-amount cost sharing requirements that would otherwise cause a loss of grandfather status without losing such status; and
• Revise the definition of “maximum percentage increase” to provide an alternative method for determining that amount based on the premium adjustment percentage.

HHS notes that there is no authority for non-grandfathered plans to become grandfathered, so these rules only propose changes for existing grandfathered plan regulations and would not provide an opportunity for a plan that lost grandfather status under previous regulation to regain that status.

HDHP Grandfathered Plans May Be Able to Make Certain Cost-Sharing Changes Necessary for HDHP Status Without Losing Grandfather Status

Cost-sharing requirements for grandfathered group health plan or group health insurance coverage that is an HDHP must satisfy a minimum annual deductible requirement and maximum out-of-pocket expenses requirement. These amounts are annually updated by a cost-of-living adjustment, which currently has not exceeded the maximum percentage increase that would cause an HDHP to lose grandfather status.

To prevent a potential conflict when a cost-of-living adjustment exceeds that maximum percentage, HHS is proposing that increases to the fixed-amount cost-sharing requirements that would otherwise cause grandfathered plans or coverage that is an HDHP to lose grandfather status would not cause that loss in status to the extent that the increase is necessary to maintain status as an HDHP.

Second Method Proposed for Maximum Percentage Increase Calculation

HHS is proposing to amend the definition of maximum percentage so that premium adjustment percentage can be used as an alternative standard to account for changes in health care costs over time, instead of using medical inflation. The rule notes that the agencies believe that premium adjustment percentage is the best existing measure to reflect the increase in underlying costs for grandfathered group health plans and grandfathered group health insurance. Premium adjustment percentage reflects growth in private health insurance premiums while medical inflation reflects changes in private insurance as well as self-pay patients and Medicare. Neither self-pay or Medicare are reflected in underlying costs for grandfathered plans and coverage.

The new alternative standard of premium adjustment percentage would not supplant the current standard. Instead, it would be used when it creates a greater result and only applies to increases after adoption of a final rule. This means that increase to fixed-amount cost-sharing requirements for grandfathered group health plans and grandfathered group health insurance coverage effective after adoption of a final rule would cause loss of grandfather status if total percentage increase in the cost-sharing requirement exceeds the greater of:

• Medical inflation, expressed as a percentage, plus 15 percentage points; or
• The portion of the premium adjustment percentage that reflects relative change between 2013 and the calendar year prior to the effective date of the increase, expressed as a percentage, plus 15 percentage points.