Interim Final Rules Released on Group Health Plan Grandfather Status Under Healthcare Reform Law

On June 14, federal agencies responsible for Healthcare Reform regulations issued interim final rules addressing grandfathering of health plans (the Rules) under the Patient Protection and Affordable Care Act of 2010 (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act) (collectively, the Healthcare Reform Law).

The Rules clarify when a group health plan will be deemed to be a grandfathered plan, the administrative steps necessary to maintain its status as a grandfathered plan, and what changes to a plan will result in the loss of grandfathered status.

The concept of grandfathering under PPACA stems from President Obama's statements during the Healthcare Reform debate that "If you like your plan, you can keep it." However, the permanency of grandfathering is indicated in the statement in the preamble to the Rules that grandfathering is a "glide path toward a competitive, patient-centered market of the future."

In addition to the planed obsolescence built into the grandfathering Rules, the term is itself is a bit of a misnomer because, due to the Reconciliation Act changes to PPACA, there are a number of individual and group market reforms that are applicable to grandfathered plans (including the revolutionary application of PPACA to collectively bargained plans).

The Rules were published in the Federal Register on June 17, 2010 as the "Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Plan under the Patient Protection and Affordable Care Act" and are effective immediately. The comment period on the Rules ends August 16, 2010. The Tri-Agency Group (the IRS, the Department of Labor, and the Department of Health and Human Services) that published the Rules will release additional nonregulatory administrative guidance as they deem necessary to clarify or interpret the Rules.

Background

Under the Healthcare Reform Law, health plans that were in existence on March 23, 2010 (the date of enactment of PPACA) are considered grandfathered and do not have to comply with certain new individual and group market reforms in the law.

Regardless of grandfathering status, insurers and group health plans must modify coverage to comply with several new individual and group market mandates, including widely discussed changes such as the end of annual or lifetime limits and the extension of coverage to adult children up to age 26.1 These changes take...