Two Cost-Sharing Changes Provide Flexibility for Grandfathered Plans

On December 15, 2021, the Departments of Labor, Health & Human Services, and Treasury (“Departments”) issued a final rule (“Rule”) expanding cost-sharing requirements for grandfathered group health plans and insurance coverage to adjust for inflation and permit preservation of High Deductible Health Plan (HDHP”) status without causing loss of “grandfathered” status.

Grandfathered Plans are permitted to exist as “exemptions” to provisions of the 2010 Affordable Care Act (“ACA”) as long as they meet criteria such as coverage for at least one person. Such plans do not require compliance with elements of the ACA such as coverage of essential health benefits or preventive services without cost-sharing. However, 2015 regulations outlined criteria that would cause a Grandfathered Plan to lose such status. Among these are elimination of all benefits for treatment of a particular condition; increase in cost-sharing percentage; and a decrease in employer contribution rate by more than 5% points.

The 2020 Rule applies to group health plans and insurance beginning June 15, 2021. The Rule is two-pronged in its changes, namely to buffer deductible increases and inflation:

  1. HDHP Status: a Grandfathered group health plan that is a HDHP may modify (read, increase) the fixed-amount cost-sharing requirement as necessary to comply with IRC Section 223(c)(2) regarding HSA deductible amounts.
  2. Inflation-Adjustment Alternative Calculation: Grandfathered health plans may now determine cost-sharing increases by using the greater of the medical Consumer Price Index for Urban Consumers, or the most recently published annual premium adjustment percentage (used to set rate for certain ACA parameters).

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