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EB Flash: Final Rule Provides More Flexibility For Grandfathered Group Health Plans

Employee Benefits Alert

On December 11, 2020, the Internal Revenue Service (IRS), Employee Benefits Security Administration, and Centers for Medicare & Medicaid Services issued final regulations regarding grandfathered group health plans and group health insurance coverage. The guidance provides more flexibility to make changes to certain types of cost-sharing requirements without causing a loss of grandfather status under the Affordable Care Act.

The tri-agency rulemaking finalizes without substantive change the guidance as initially proposed in July. As briefly summarized in the regulations, its two major provisions: 

  • Specify that any grandfathered group health plan and grandfathered group health insurance coverage that is an HDHP may change fixed-amount cost-sharing requirements, such as deductibles, without causing a loss of grandfather status, but only to the extent those changes are necessary to comply with the requirements for HDHPs under section 223(c)(2)(A) of the Code (and thus ensuring that participants and beneficiaries enrolled in the coverage remain eligible to contribute to a health savings account); and
  • Provide an alternative method of measuring permitted increases in fixed-amount cost-sharing that relies on the premium adjustment percentage, rather than medical inflation, to account for changes in health care costs over time.

The final regulations are set for publication in the Federal Register on December 15, 2020. They are to take effect 30 days after publication with an applicability date of June 15, 2021.

The 82-page text of the final regulations is posted here. A press release is posted here.

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