Five Years Later, Final Rules on Grandfathered Plan Status, Etc.

Balch & Bingham LLP

Today, the ACA enforcement agencies (DOL, HHS, IRS) jointly published final rules, effective January 1, 2017, on grandfathered plan status, pre-existing condition exclusions, lifetime and annual limits, rescissions, dependent coverage, appeals and patient protections. Interim rules and sub-regulatory guidance issued since June 2010 are merged and finalized. On first reading (104 pages), we see no boat-rocking changes, but here are bits we think deserve review.

Grandfathered Plan Status

Grandfathered status is lost immediately, irrevocably, when a prohibited change is made, even in mid-year. However, since this applies separately to each benefit package within a plan – e.g., a PPO option, and HMO option and a POS arrangement – grandfathered status of the entire plan is not lost when the plan makes changes that forfeit the grandfathered status of one benefit package.

More good news for unions: multiemployer plans get substantial exemption from anti-abuse rules, permitting new employers to join expressly to take advantage of the plans’ grandfathered status.

Dropping coverage of anything needed to diagnose or treat a particular condition will be treated as eliminating substantially all benefits for that condition, forfeiting grandfathered status. For example, if a mental condition requires both drugs and counseling and the plan deletes counseling, grandfathered status is lost.

If employees pay a fixed dollar amount (including $0) that does not increase, a plan remains grandfathered even if the employer contribution rate declines by more than 5%.

A grandfathered plan offering self-only coverage may add family coverage and peg the employee contribution for the new family tier at more than 5% above the self-only rate.

When a generic alternative becomes available, a grandfathered plan may move the brand name drug to a higher cost-sharing tier without forfeiting its status due to increased costs imposed on those who continue to buy the brand name drug.

HRAs and Premium Reimbursement Plans

A stand-alone HRA remains illegal, as does a health FSA not offered through a § 125 plan. But very small employers (under 20), exempt from the duty to offer group health coverage to Medicare-eligible employees, now may integrate premium reimbursement plans with Medicare Part B or D as long as they offer group health coverage to employees not Medicare eligible.

Dependent Coverage

Some HMO plans require covered individuals to live within a stated geographic area. When a child under age 26 is away at college, she loses eligibility. This now will be deemed to violate the adult child coverage mandate. For dependents other than children (e.g., grandchildren), a plan may impose residence, financial dependence or similar coverage requirements.

External Appeals

Plans no longer may condition external review on payment of a filing fee, with one exception. In states with laws expressly permitting nominal filing fees, consistent with the 2004 NAIC model, a plan may charge a fee up to $25 per appeal (limited to $75 annually per claimant) if the plan refunds fees paid for successful appeals and waives fees that would impose a financial hardship.

Emergency Services

The agencies believe that plans have been abusing out-of-network providers, resulting in excess balance billing of patients. Henceforth, plans must pay for out-of network emergency services at least the greatest of – (1) the median amount paid to network providers; (2) the product of the formula that the plan uses generally for out-of-network services (UCR, for example); (3) the Medicare payment amount.


Thank you for your interest in our information on the current status of Affordable Care Act and its implementation. While we are happy to provide you our best information and analysis of the regulations promulgated by the Internal Revenue Service, please be advised that the contents and conclusions contained in this article and any email communication are introductory and educational in nature and do not express a formal, enforceable opinion. Nothing contained in this article and any email communication is intended to be used, or relied upon by any taxpayer for the purpose of avoiding taxation and penalties that may be imposed under the Internal Revenue Code. Any statement contained in this article and any email communication relating to any federal tax issue may not be used by any person to support the promotion, marketing of, or used to recommend any transaction for the purpose of avoiding taxation or penalties.

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Balch & Bingham LLP

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