Grandfathering Restrictions

The information provided here is designed to help plan sponsor understand the restrictions that apply to a grandfathered plan. You may wish to explore the following:

Grandfathering Eligibility Questionnaire

The following chart helps a plan sponsor assess whether a particular plan option is eligible to elect grandfathered status. If you answer yes to any question, the plan is not eligible for grandfathering.

With regard to the upcoming plan year…

If Yes…

Have benefits in effect on March 23, 2010 been eliminated?

A plan will lose grandfathered status if (1) all or substantially all benefits to diagnose or treat a particular condition were eliminated or (2) benefits were eliminated for a necessary element to diagnose or treat a condition. 

Has there been any increase in coinsurance percentage since March 23, 2010? (e.g. 1%)?

Any increase in coinsurance will cause the plan to lose grandfathered status. Click here to see an example.

Has there been any increase in deductible or out­-of-­pocket maximum since March 23, 2010?

Any increase in deductible or out-­of-pocket maximum by more than the rate of medical inflation since March 23, 2010 plus 15% will cause the plan to lose grandfathered status.

Has there been any increase in co-payment amounts?

An increase in the co-payment amount that was in effect on March 23, 2010 by more than the greater of (1) the rate of medical inflation since March 2010 plus $5 or (2) the rate of medical inflation since March 2010 plus 15% will cause the plan to lose grandfathered status.

Has the employer contribution for any tier of coverage decreased by more than 5% below the employer contribution rate for the coverage period that included March 23, 2010?

Any reduction in the employer contribution rate toward the cost of any tier of coverage for any class of similarly situated individuals by more than 5% below the employer contribution rate for the coverage period that includes March 23, 2010, will cause the plan to lose grandfathered status. If self­-insured, the contribution rate would be based on COBRA valuation

Will the plan have had a change in its annual limits since March 23, 2010?

A plan will lose its grandfathered status if any of the following occur:

(1)   Adding an overall annual dollar limit to a plan that had no annual or lifetime dollar limits on March 23, 2010.

(2)   Adding an annual limit (to a plan that had a lifetime limit but no annual limits) with a lower dollar value than the lifetime limit in effect on March 23, 2010.

(3)   Decreasing the dollar value of the annual limit on a plan or coverage below the value on March 23, 2010.

Other Changes that Could Jeopardize Grandfathered Status

In addition to the plan changes described above, a plan can also lose grandfathered status as a result of any of the following:

  • If employees are moved among or between plans for purposes of evading ACA requirements.
  • If the principal purpose of a merger, acquisition or similar business restructuring is to cover new individuals under a grandfathered plan.
  • If employees are transferred from a plan they were covered under on March 23, 2010 to a receiving plan which, if it was treated as an amendment to the transferor plan, would cause the transferor plan to lose its grandfathering status. Note: Does not apply to a bona fide employment­-based reason.

Other Permissible Changes

  • Employees may move between benefit options at annual enrollment without affecting the grandfathered status of either option. New employees may enter into the plan without impacting grandfathered status.
  • If the employer changes third party administrators or insurers, typically grandfathering would not be lost solely for this reason.
  • Plans amended to comply with federal or state legal requirements will not lose grandfathered status.
  • Plans amended to enhance benefits will not lose grandfathered status solely for this reason.

Open Questions

There are many unanswered questions with regard to grandfathering. Some may be answered in additional agency guidance. The following are a few examples of frequently asked questions that are not answered directly by the interim final regulations on grandfathering:

  • The rules are unclear as to grandfathered status if changes are made to the plan's structure such as moving from an HMO to a PPO.
  • The rules are unclear as to grandfathered status if the plan's network is altered.
  • The rules are unclear as to grandfathered status if the plan's prescription drug formulary is altered.

Neither American Fidelity Assurance Company nor American Fidelity Administrative Services provides tax or legal advice and, given the complexity of these laws, we always recommend working with your legal counsel on how the laws impact your specific situation. 

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