Some U.S. health care reform rules apply to all plans, but many
do not apply to grandfathered plans – that is, plans in
existence on March 23, 2010 that have not materially changed
benefits. For example, grandfathered plans do not have to provide
non-discriminatory insured benefits or eliminate employee co-pays
for preventive care, although they are subject to many aspects of
On June 14, 2010 the three agencies responsible for interpreting
health care reform clarified which changes end grandfathered status. The rules permit
benefit increases, but take a very strict view about which new
costs or benefit limits grandfathered plans are permitted to
A plan may lose its grandfathered status if it eliminates
benefits to diagnose or treat a particular condition or if the
employer's share of benefit costs declines by more than 5
percentage points. Annual dollar limits cannot be reduced, and
deductibles and co-payments cannot be increased by a percentage
greater than the percentage rate of medical inflation plus 15
percentage points or, for co-pays, $5 increased for inflation.
These are just examples, and there are many other disqualifying
The new regulations are effective on publication. Recognizing
that some rules were not anticipated, the regulations provide that
changes adopted before March 23, 2010 or pursuant to a written
agreement entered into before March 23, 2010 will not be taken into
account. The regulations also establish a transition rule that
changes that would cause a plan to lose grandfathered status and
were adopted prior to publication of the regulations may be
repealed or modified retroactively. This appears to be a limited
opportunity, through December 31 for calendar year plans.
U.S. employers need to familiarize themselves with these rules
because while some employers may decide to fore-go grandfathered
status to preserve flexibility, a mistaken assumption that a plan
has grandfathered status may cause significant compliance failures.
Further, any changes made since March 23 should be reviewed as soon
as possible to determine whether they should be revoked or
Carol Buckmann has practised in the employee
benefits field for over 25 years, advising clients on all aspects
of employee benefits and retirement plans, including questions
relating to 401(k), defined benefit and employee stock ownership
plans, welfare plans, fiduciary responsibility, prohibited
transactions and plan asset issues arising in investment fund
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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