Proposed Regulations Protect Grandfathered High Deductible Health Plans And HSAs

The following general summary is intended to educate employers and plan sponsors on the potential effects of recent government guidance on employee benefit plans. This summary is not and should not be construed as legal or tax advice. The government’s guidance is complex and very fact specific. As always, we strongly encourage employers and plan sponsors to consult competent legal or benefits counsel for all guidance on how the actions apply in their circumstances.

On July 10, 2020, the Department of Labor (DOL) Employee Benefits Security Administration (EBSA) announced the release of proposed regulations by the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the “Agencies”) regarding health insurance plans that are grandfathered under the Affordable Care Act (ACA) to preserve their grandfathered status, along with guidance in the form of FAQs and a press release explaining the proposal.1

By way of background, group health plans and health insurance coverage that were in existence and had at least one participant on the date the ACA was enacted (March 23, 2010) are excused from some of the requirements of health care reform listed in the Public Health Service Act (PHSA) and incorporated by reference into the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. Such plans and coverage are, under Section 1251 of the ACA, referred to as “grandfathered health plans.” To retain this status, the plan or coverage must have continuously covered someone—though not necessarily the same person—since March 23, 2010. While such a plan is a “grandfathered health plan,” it is not subject to certain requirements of the ACA, including the requirement to cover preventive services without cost-sharing.

However, certain changes in plan terms can cause these plans to lose their grandfathered status and—therefore—would make them subject to these requirements. The final regulations (published November 18, 2015),2 along with previously issued interim regulations3 and guidance documents, detailed the various changes that could be made to health coverage that could maintain—and those that might result in a loss of—grandfathered status.

Under those regulations, increases in the amount of fixed-amount cost sharing (e.g., deductibles, copayments, out-of-pocket limits) under the grandfathered health coverage would not cause the loss of grandfathered status as long as the change was within certain parameters. Specifically, inflationary adjustments of up to 15 percent above medical inflation were allowed; any increase (cumulatively measured from March 23, 2010) in fixed-amount cost-sharing other than copayments (e.g., deductible or out-of-pocket limits) of more than 15 percent above medical inflation would cause the plan to lose its grandfathered status.

In January 2017, President Trump issued Executive Order 13765—“Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal”4 directing the Agencies to minimize the unwarranted economic and regulatory burdens of the ACA. Pursuant to this instruction, the Agencies proposed regulations to modify the final 2015 regulations by expanding the parameters for changes to grandfathered coverage that would not result in the loss of grandfathered status.

High Deductible Health Plans
First, a noteworthy change in the proposed regulations is that, to the extent an increase in fixed-amount cost sharing requirements in a Health Savings Account (HSA)-compatible high deductible health plan (HDHP) is necessary to maintain its status as an HDHP (for example, an increase to a deductible), such an HDHP may make such an increase without losing its grandfathered status under the ACA. This would allow participants and beneficiaries enrolled in that HDHP coverage to remain eligible to contribute to an HSA. The preamble to the proposed regulations noted that annual cost-of-living adjustments to the required minimum deductible for an HDHP (determined by the IRS after finalization of the 2015 regulations) have not caused any HDHPs to lose grandfathered status. However, the Agencies were asked to provide guidance to ensure that following the IRS-determined cost-sharing amounts in future years would never cause an HDHP to lose its grandfathered status.

Alternative Inflation Adjustment
Second, the proposed rule provides an alternative method of measuring permitted increases in fixed-amount cost sharing that would allow plans and issuers to better account for changes in the costs of health coverage over time. Generally, under the 2015 regulations, increases—measured since March 2010—in fixed-amount cost-sharing requirements are permitted provided that they do not exceed the “maximum percentage increase,” which is determined by reference to the overall medical care component of the Consumer Price Index for All Urban Consumers measure of medical inflation plus 15 percentage points.

The proposed rules revise the definition of “maximum percentage increase” for purposes of group health plan coverage so it is the greater of the current standard (that is, percentage medical inflation plus 15 percentage points) or by reference to the applicable portion of the “premium adjustment percentage” that the HHS publishes for each calendar year in its annual Notice of Benefit and Payment Parameters, plus 15 percentage points. This premium adjustment percentage generally measures premium growth in the private health insurance market since 2013. The Agencies acknowledged that this revision was suggested by commenters and may be a more appropriate accounting of changes in healthcare coverage costs over time (versus medical inflation based on the Consumer Price Index, which also includes patients who pay out-of-pocket and those on Medicare). The proposed rules will allow plan sponsors to implement cost-sharing increases using the greater of these two figures occurring on or after the effective date of the final regulations.

The proposed rules do not otherwise amend the current regulations, such as the rules regarding other plan changes that cause a loss of grandfathered status (such as an elimination of benefits or decreases in employer contributions).

The regulations are proposed to apply beginning 30 days following the publication of any final rules. The Agencies requested that public comments be submitted no later than August 14, 2020.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

References:

  1. https://www.dol.gov/newsroom/releases/ebsa/ebsa20200710.
  2. https://www.govinfo.gov/content/pkg/FR-2015-11-18/pdf/2015-29294.pdf.
  3. https://www.govinfo.gov/content/pkg/FR-2010-06-17/pdf/2010-14488.pdf.
  4. https://www.federalregister.gov/d/2017-01799.

Jason Folks, CFCI, is the director of compliance services with WageWorks, Inc., in Irving, TX. He has over 15 years of experience in regulatory compliance and employer consultation.

Folks attended New York University and holds a Certified in Flexible Compensation Instructor (CFCI) through the Flexible Compensation Institute, LLC, a wholly-owned subsidiary of the Employers Council on Flexible Compensation.

Folks can be reached via email at: Jason.Folks@WageWorks.com.