Understanding Grandfathered Coverage

Purpose

When your company brings existing voluntary life, voluntary AD&D, or critical illness plans onto UZIO, or changes carriers, some employees already hold coverage amounts from before. Grandfathered coverage is that prior amount, honored by the new carrier. The employee can keep electing up to it without Evidence of Insurability (EOI), the health questionnaire a carrier normally requires above a set amount, even when the grandfathered amount is higher than the new plan's normal limit. This article explains what grandfathered coverage protects, what employees see while enrolling, and what to tell an employee who asks about it.

Who needs this: HR and benefits admins fielding enrollment questions. Grandfathered amounts are loaded by your broker while building or renewing the proposal. There is nothing to configure in your portal.

When it applies

• Products: Voluntary Life, Voluntary AD&D, and Critical Illness, for the employee and, where the plan covers them, spouse and children.
• Situations: your company moves these plans onto UZIO for the first time; your broker renews the package with a new carrier; or a benefit category is added at renewal that your employees held elsewhere before.

What it protects

A carrier issues coverage without EOI only up to the plan's Guaranteed Issue (GI) amount. With grandfathered coverage, the no-EOI ceiling for that employee becomes the highest of:

1. the plan's GI amount,
2. the employee's grandfathered amount,
3. the grandfathered amount plus one step increase, where your broker configured a step increase for Voluntary Life.

Example. An employee is grandfathered at $150,000. The new plan's GI is $120,000. A request for $140,000 is issued without EOI, because it is under the employee's grandfathered amount. A request for $160,000 would exceed both and would pend for EOI, unless a step increase covers the difference.

What it does not protect

• A new carrier can re-rate. If the carrier changes at renewal, premiums may be recalculated at the employee's current age, according to that carrier's rules. The coverage amount stays grandfathered; the rate may not.
• Only the amount is grandfathered, not a lapse. An employee who previously declined and later enrolls for the first time (for example after a life status change) is rated at their age at that enrollment, with no grandfathered amount.
• New hires have no grandfathered amount. Their premium is based on their age when the policy first takes effect.
• Categories never offered before on UZIO have grandfathered amounts only if your broker uploaded them.

What employees see while enrolling

• The grandfathered amount appears pre-selected as "Current Coverage" in the coverage drop-down.
• If the amount does not match the plan's standard increments (for example $35,000 in a plan that steps by $10,000), it appears as an extra option in the drop-down. If it matches a plan design amount, or equals the salary multiple in a salary-based plan, no extra option is added.
• Where a step increase is configured, the drop-down also offers Current Coverage plus the step amount, shown in parentheses. Selecting that option does not pend for EOI.
• Any amount above the employee's ceiling pends for EOI. The carrier decides; UZIO shows the election as pending until the carrier approves or declines.

Issue age vs attained age

For these products, the carrier also decides how age affects the premium at renewal:

• Issue age (premium freeze). The premium is calculated at the age the coverage was first issued and does not rise as the employee ages. Unchanged coverage renews at the same rate. A carrier change can reset this.
• Attained age. The premium follows the employee's current age and steps up as they cross age bands.

Which method applies is part of the plan your broker built. It is visible in the proposal's rate detail.

What happens at renewal

• A benefit your company already offered on UZIO last year needs nothing from you: UZIO uses each employee's prior-year coverage as the grandfathered amount automatically.
• Your broker is asked to upload grandfathered amounts only for categories being offered on UZIO for the first time.
• The step increase for Voluntary Life, where configured, is offered again each renewal.

What to tell an employee

• "The amount you see as Current Coverage is what you held before. You can keep up to that amount without a health questionnaire."
• "You can go higher, but anything above your Current Coverage (or one step above it, if that option appears) needs the carrier's approval first. Your election shows as pending until they decide."
• "If your Current Coverage amount looks wrong, tell HR. We will have the broker check the figure that was loaded."

Common problems

Why does an employee's coverage drop-down show an odd amount that is not one of the plan's increments? That is their grandfathered amount, carried over from prior coverage. It is deliberate and it is the amount they can keep without EOI.

An employee says their Current Coverage is wrong. The figure was loaded by your broker from the prior carrier's records, or carried forward from last year's election on UZIO. Send your broker the employee's name, the amount shown, and the amount the employee believes is correct, with any prior-carrier confirmation the employee has. The broker corrects the data on their side.

An employee elected above their Current Coverage and the election is pending. It is waiting for the carrier's EOI decision. The carrier contacts the employee for the health questionnaire. Until it is approved, the employee's coverage stays at the approved amount. Ask your broker for the status if nothing has happened after a few weeks.

An employee's life premium went up at renewal even though they changed nothing. Either the plan is attained-age rated and the employee crossed an age band, or the carrier changed at renewal and re-rated at current age. Your broker can confirm which from the plan's rate basis.

Related articles

• Viewing Your Benefit Proposals
• Tracking Open Enrollment and Completing an Enrollment for an Employee
• Reporting a Life Status Change on an Employee's Behalf
• Employee view: Understanding Your Coverage and Costs