The interim final regulations relating to status as a grandfathered health plan generally state that 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. However, the interim final regulations also provide that this rule applies only if there was no bona fide employment-based reason to transfer the employees.
For purposes of paragraph (b)(2) of the interim final regulations relating to status as a grandfathered health plan, the Departments interpret the term “bona fide employment-based reason” to embrace a variety of circumstances. These circumstances (under which a transfer would not cause cessation of grandfather status) include, but are not limited to, any of the following:
The foregoing is not intended to be an exhaustive list of circumstances that will be deemed to satisfy the bona fide employment-based reason condition. There may be many other circumstances in which a benefit package is considered to be eliminated for a bona fide employment-based reason.
No. For example, if, on March 23, 2010, the terms of the plan included prescription drug benefits with different cost sharing divided into tiers as follows:
A drug was previously classified in Tier 2 as a brand name drug with no generic available. However, a generic alternative for the drug has just been released and is added to the formulary. Since the generic is now available, the plan moves the brand name drug into Tier 3 and adds the generic to Tier 1. This movement of the brand name drug into a higher cost-sharing tier does not cause the plan to relinquish grandfather status.
No. This increase in the copayment for these preventive services solely in the in-network outpatient hospital setting (subject to the waiver arrangement described above) without any change in the copayment in the in-network ambulatory surgery center setting would not be considered to exceed the thresholds described in paragraph (g)(1) of the interim final regulations on grandfather status and thus would not cause the plan to relinquish grandfather status.
The Departments are seeking further information on VBID and wellness programs and are 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 the regulatory process progresses, the Departments will be giving close attention to these comments, and further guidance may be issued addressing other circumstances in which plan changes implementing those designs and programs may be made without relinquishing grandfather status.
A plan or coverage will cease to be a grandfathered health plan 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. Therefore, in this example, the plan would cease to be a grandfathered health plan on January 1, 2012, the first day of the first plan year for which the change is effective.
Yes. A plan or coverage will cease to be a grandfathered health plan when a plan amendment becomes effective. Therefore, 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.
If a plan sponsor wishes to avoid relinquishing grandfathered status in the middle of a plan year, any changes that will cause a plan or coverage to relinquish grandfather status should be made effective the first day of a plan year that begins after the change is adopted.
In this example, the employer makes contributions based on a formula. Accordingly, 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. If the formula does not change, the employer is not considered to have reduced its contribution rate, regardless of any increase in the total cost of coverage. However, if the dollar amount that is multiplied by years of service decreases by more than five percent (or if the $10,000 maximum employer contribution cap decreases by more than five percent), the plan will cease to be a grandfathered health plan.
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