Grandfathering amendments to Affordable Care Act designed to increase employer flexibility

By Mike Scott

Legal News

An amendment that will increase the flexibility of options for employer-funded health care plans was finalized in mid-November that will ease the restrictions on compaies for making plan changes. Area lawyers are working with clients to communicate how this changes the way that employers handle their health care plans under the Affordable Care Act passed by Congress earlier this year.

What this new amendment means for employers is that it increases their opportunities to maintain grandfathered status under the ACA, said Christopher Trebilcock, deputy leader of the Labor and Employment Group and a principal in the Detroit office of Miller, Canfield, Paddock, and Stone PLC. As a result, there will be less need for many of these employers to lose their grandfathered status while increasing their flexibility in available options.

"This late in the (2010 calendar) year it may not make a huge impact, but it will increase the flexibility for just about everyone moving forward," Trebilcock said. "Companies who have maintained their grandfathered status will be able to do so until at least 2014."

Companies that already have gone through open enrollment will have to wait until next year to benefit from these changes directly, however companies whose fiscal year does not mirror the calendar year could see more immediate benefits, Trebilcock said.

The move also signifies a general level of flexibility that has been added to the health care reform bill itself, according to Mercedes Varasteh Dordeski, a health care and business lawyer and partner in the Troy office of Frank, Haron, Weiner, & Navarro PLC.

Employers are worried both about the bottom-line costs of offering employees health insurance and the quality of coverage that is affordable, Varasteh Dordeski said. The new amendment allows employers to make changes to their group health care plans as long as certain steps aren't taken that are still prohibited. Those steps generally include a wide range of actions that would either significantly reduce the level, quality or amount of health care coverage provided to clients. They also may eliminate benefits altogether.

"Now you can switch plans as long as you don't go outside of the grandfathered status (requirements) in the first place," Varasteh Dordeski said.

In addition, the amendment is not retroactive, Varasteh Dordeski said.

"So if an employer switched health plans at any time between March 23 and November 15 and the coverage took effect during that time frame, the employer would lose its grandfathered status. Clients often have questions about retroactivity whenever there are changes in the law," she said.

The practical implications of the Affordable Care Act may not have been completely thought through because of the sheer size of the bill and its impact, so some changes were likely inevitable, Trebilcock said. However, modifications became even more likely once the Republican Party took over control of the U.S. House of Representatives.

"I think there are some significant political pressures involved here," Trebilcock said. "Our government isn't set up to have massive overhauls to laws that have already been (finalized), so I would expect there may be more modifications or tweaks as we move forward."

Those "tweaks" could come from either federal agencies themselves, such as Health and Human Services (HHS) or the IRS, he added.

According to the amendments, the statutory term "group health plan" applies the grandfather provisions uniformly to both self-insured and insured group health plans.

The departments of Treasury, Labor and HHS have now amended the interim final rule/regulation to "allow a group health plan to change health insurance coverage." That will allow a group health plan to enter into a new policy, certificate, or contract of insurance without ceasing to be a grandfathered health plan, provided that the plan continues to comply fully with certain standards.

The modification provides that a group health plan does not cease to be grandfathered health plan coverage merely because the plan or its sponsor enters into a new policy, certificate, or contract of insurance after March 23, 2010. Thus, a plan can retain its grandfather status if it changes its carrier, so long as it has not made any other changes that would revoke its status.

As a practical matter, the amended regulations will likely impact relatively few employers, as an employer still needs to meet all the other outlined requirements to maintain grandfather status, Varasteh Dordeski said. Nevertheless, it will give employers added protections.

"The way the bill was previously worded was limiting," Varasteh Dordeski said. "(The amendment) protects employers from things that aren't their fault."

For now, health care lawyers, their business clients and individuals are still digesting the impact of the Affordable Care Act itself along with ongoing changes, such as the update to grandfathering status, Trebilock said. As a result, the goal for most lawyers in dealing with the changes to grandfathering status is addressing client needs and questions.

"What I get most are questions from clients who want to clarify what they heard from their (insurance) agent or read in the paper or online," Trebilcock said. "There are still, and will continue to be, grey areas of ambiguity."

Published: Mon, Dec 20, 2010