In June, the Departments of Health and Human Services, Treasury, and Labor issued the grandfathered status rules for health plans under the recently enacted Patient Protection and Affordable Care Act (the "Affordable Care Act"). A grandfathered health plan is a plan that provided coverage to participants on March 23, 2010, the date the Affordable Care Act was signed into law. Grandfathered health plans enjoy special status and are exempt from a number of new requirements. 

Plans that reduce benefits or increase costs will lose their grandfathered status unless the level of change is permitted under the regulations.  According to the interim final rules, changes that will end grandfathered status include:
• Significantly cutting or reducing benefits to diagnose or treat a particular condition;
• Raising the level of co-insurance (e.g., going from an 80/20 plan to a 70/30 plan);
• Raising co-payment charges by more than (1) the rate of medical inflation plus 15 percent, or (2) $5, as adjusted for medical inflation, whichever is greater;
• Raising deductibles and out of pocket limits in excess of the rate of medical inflation since March 23, 2010, plus 15 percent;
• Lowering employer contributions by more than 5 percent;
• Reducing or adding new annual limits;
• Changing insurance policies, certificates or contracts;
• Forcing employees to switch to another grandfathered plan that provides less benefits or higher costs as a means of avoiding the Affordable Care Act's protections; and
• Merging with another plan for the purpose of avoiding compliance with the Affordable Care Act.

Importantly, the determination of grandfathered status is made separately with respect to each benefit option available under a group health plan.  So, for example, if a plan has three benefit options and makes an impermissible change to one of the options, only that option will lose its grandfathered status as a result of the change. The other two benefit options will remain grandfathered.

If a plan loses grandfathered status, it will have to comply with all of the provisions of the Affordable Care Act, including:
• No cost-sharing requirements for preventative care;
• External review procedures for benefit claim appeals;
• Non-discrimination testing; and
• Emergency services without preauthorization.

The full text of the interim final rule is available at: http://frwebgate3.access.gpo.gov/cgi-bin/PDFgate.cgi?WAISdocID=3V4JLi/2/2/0&WAISaction=retrieve.