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January 06, 2011
Agencies Amend Grandfathering Instructions

The Internal Revenue Service (IRS), Employee Benefits Security Administration (EBSA), and Office of Consumer Information and Insurance Oversight (OCIIO) amended the instructions regarding changes to healthcare coverage plans that will lose grandfathered status under the Affordable Care Act (ACA).

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According to the agencies, the new rules were issued in response to many employer concerns and comments that they’ve received since the original rules were issued.

The most significant amendment is that employers with fully insured plans can now change carriers without losing grandfathered status—something the original rules, issued in June 2010, did not permit.

There were also concerns about events beyond employers’ control, such as a carrier leaving the employer’s market or the employer’s company being sold, necessitating a change of insurance. Note that this is a prospective rule change, meaning that if an employer changed carriers between March 23, 2010, and November 17, 2010, when the new rules were published, that employer’s plan is not grandfathered. Note, too, that employers who self-insure (paying claims themselves but retaining third parties to administer the plans) could, even under the June rules, change administrators and keep grandfathered status.

One final goal of the new rules was to keep healthcare costs down. The agencies’ fact sheet said, “Allowing employers to shop around can help keep costs down while ensuring individuals can keep the coverage they have.” To summarize bans still in effect for grandfathered plans, they include benefit eliminations, cost-sharing percentage increases, certain fixed-amount cost-sharing increases, certain employer contribution rate reductions, and annual benefit limit decreases.

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