The DOL’s Employee Benefits Security Administration (EBSA) has posted on its website its sixth set of frequently asked questions (FAQs) regarding the Affordable Care Act’s implementation.  The questions and answers all address issues dealing with grandfathered health plans.

The first FAQ discusses the scope of the anti-abuse rule included in the grandfathered health plan interim final regulations. The agency explains that under these regulations, “transferring employees from one grandfathered plan or benefit package (transferor plan) to another (transferee plan) will cause the transferee plan to relinquish grandfather status if amending the transferor plan to replicate the terms of the transferee plan would have caused the transferor plan to relinquish grandfather status.” This rule applies only if there was no bona fide employment-based reason to transfer the employees. In response to a question about the scope of this exception, the EBSA states that it considers a “bona fide employment-based reason” to include a variety of circumstances, such as the following:

• When a benefit package is being eliminated because the issuer is exiting the market;
• When a benefit package is being eliminated because the issuer no longer offers the product to the employer (for example, because the employer no longer satisfies the issuer's minimum participation requirement);
• When low or declining participation by plan participants in the benefit package makes it impractical for the plan sponsor to continue to offer the benefit package;
• When a benefit package is eliminated from a multiemployer plan as agreed upon as part of the collective bargaining process; or
• When a benefit package is eliminated for any reason and multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred.

The agency notes that this list is not meant to be exhaustive.

The EBSA’s response to a separate question about prescription drugs explains that moving a brand-name drug into a higher cost-sharing tier because a generic version has become available does not cause the health plan to relinquish its grandfathered status.

With respect to the interaction of value-based insurance design (VBID) and the no cost-sharing preventive care services requirements imposed by the regulations, the Q&A explains that a plan may impose a co-payment on preventive services performed in an in-network outpatient hospital setting (as opposed to an in-network ambulatory surgery center) without losing its grandfathered status, provided that the co-payment is waived for individuals for whom it would be medically inappropriate to provide such services in the ambulatory setting. In addressing this question, the EBSA states that it is “seeking further information on VBID and wellness programs and [is] planning to address issues relating to those designs and programs in future regulations. Comments from plan sponsors have expressed an interest in being able to retain grandfather status notwithstanding certain changes in plan terms that are intended to implement VBID and wellness programs.”

As for when a plan change triggering the loss of grandfathered status would take effect, the EBSA explains that this event happens “when an amendment to plan terms, which exceeds the thresholds described in paragraph (g)(1) of the interim final regulations, becomes effective – regardless of when the amendment is adopted.” The EBSA further clarifies that “if a plan sponsor chooses to make an amendment to plan terms effective in the middle of a plan year, the plan will cease to be a grandfathered health plan at that time.” Thus, if a plan sponsor wants to avoid the loss of grandfathered status in the middle of the plan year, the EBSA advises that such changes “should be made effective the first day of a plan year that begins after the change is adopted.”

Finally, in response to a question about when an employer’s change in contribution rate to a retired employee’s plan triggers the loss of grandfathered plan status, the FAQs explain that if an employer is making contributions based on a formula, the plan will cease to be a grandfathered health plan “if the employer decreases its contribution rate towards the cost of coverage by more than five percent below the contribution rate on March 23, 2010.” In the example provided, an employer contributes $300 per year multiplied by the individual’s years of service for the employer, up to $10,000 per year. The EBSA explains that the plan would retain grandfathered status even if the cost of coverage increases so long as the amount multiplied by years of service or the $10,000 contribution cap does not decrease by more than five percent.

Previously-issued FAQs can be found on the EBSA’s health care web page.

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