From the Hotline: Discontinuing a Grandfathered Plan

Question:  If an employer discontinues a PPO, which is part of a grandfathered plan made up of two PPOs and an HDHP, will the entire plan lose the grandfathered status?

Answer: The Affordable Care Act (federal health care reform) specifies that a health plan is a grandfathered plan if (a) it was in existence on March 23, 2010, (b) it covered at least one person on that date and has continuously covered at least one person (although not necessarily the same person), and (c) it has not made any changes that would result in loss of grandfathered status.  Federal regulations issued in connection with the Act specify the types of changes that cause loss of grandfathered status.

The Act does not define “plan” with respect to an employer-sponsored health program offering different benefit options.  Fortunately, this matter was clarified by the federal regulators in an FAQ issued in October 2010.  Each plan option available for the employee to choose is a separate “benefit package” and each benefit package is treated separately for purpose of the grandfather rule.  Therefore, in your example, PPO 2 and the HDHP will not lose grandfathered status when PPO 1 loses status.

Excerpt:  Q&A #2 from “FAQS ABOUT THE AFFORDABLE CARE ACT IMPLEMENTATION – PART II” issued jointly by the Departments of Health and Human Services, Labor and the Treasury, October 8, 2010:

“Q2: My plan offers three benefit package options – a PPO, a POS arrangement, and an HMO. If the HMO relinquishes grandfather status, does that mean that the PPO and POS arrangement must also relinquish grandfather status?

“A2: No. The grandfather analysis applies on a benefit-package-by-benefit-package basis. In this situation, it is permissible to treat the PPO, POS arrangement, and HMO as separate benefit packages. Accordingly, if any benefit package ceases grandfather status, it does not affect the grandfather status of the other benefit packages.”