Agencies Issue Final Rule on Grandfathered Status Under the ACA

A final rule has been issued by the U.S. Departments of Labor, Health & Human Services, and Treasury (the “agencies”) that allows grandfathered group health plans and insurers to make certain cost-sharing adjustments without losing grandfathered status under the Affordable Care Act (ACA).

Grandfathered plans are those that were in existence when the ACA was enacted on March 23, 2010. A few ACA provisions apply to these plans, including the ACA’s ban on exclusions for pre-existing conditions, lifetime and annual dollar limits, excessive waiting periods, and rescissions. In addition, grandfathered plans are required to cover dependents up to age 26 and provide participants with a summary of coverage and benefits. 

Under the final rule, the existing rules for grandfathered plans remain largely intact with two modifications:

High-Deductible Health Plans (HDHPs). Under the final rule, grandfathered group plans that are HDHPs can increase fixed-amount cost-sharing requirements without losing their grandfathered status providing the changes are necessary to comply with HDHP rules under Section 223(c)(2)(A) of the Internal Revenue Code. The agencies made this change to allow HDHP participants to maintain their eligibility for contributing to a health savings account (HSA). 

Alternative Inflation Adjustment Method. The final rule provides an alternative method of measuring permitted increases in fixed-amount cost-sharing that allows plans and issuers to better account for changes in the costs of health coverage over time. Plan sponsors may now make cost-sharing increases based on either the consumer price index measure of medical inflation or the premium-adjustment percentage published by the HHS annually, whichever is greater. Exceeding these thresholds would result in a plan losing its grandfathered status.

This final rule applies only to grandfathered group health plans and insurance coverage; it does not apply to grandfathered individual health coverage. The effective date of this final rule is January 14, 2021.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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