Grandfathering Explained

The Republican leadership in the House of Representatives recently indicated that it will be seeking to repeal regulations under the Affordable Care Act (ACA) that govern the “grandfathered” status of health plans. As this aspect of the health reform law gets more scrutiny, it may be useful to review some of the specifics of how grandfathering works.

The purpose of grandfathering: As provisions of the ACA go into effect, grandfathering provides for a smoother transition by allowing health plans to remain as is and not be required to implement certain aspects of the law’s new rules and protections.

How plans maintain grandfathered status: To remain grandfathered, a plan had to be in existence as of March 23, 2010 (when the health reform law passed) and not make any major changes in coverage since then. Some examples of changes in coverage that would cause a plan to lose grandfathering include:

• Eliminating benefits to diagnose or treat a particular condition.
• Increasing the up-front deductible patients must pay before coverage kicks in by more than the cumulative growth in medical inflation since March 23, 2010 plus 15 percentage points.
• Reducing the share of the premium the employer pays by more than five percentage points since March 23, 2010.

Keep in mind that for employer-sponsored insurance, any change in grandfathered status is up to the employer, who can choose whether or not to make changes to the plan.

Why it matters: Many of the ACA’s provisions apply regardless of grandfathered status. For example, all plans have to allow dependents up to age 26 to enroll (though only non-grandfathered plans are required to enroll dependents who have access to their own employer coverage). And lifetime limits on coverage are now prohibited. But here are some of the key provisions that do not apply to grandfathered plans:

• A requirement that plans provide preventive services with no patient cost-sharing.
• State or federal review of insurance premium increases of 10 percent or more for non-group and small business plans.
• A rule allowing consumers to appeal denials of claims to a third-party reviewer.
• Starting in 2014, the requirement to provide the minimum “essential health benefits.” (Note that this requirement does not apply to large employers, whether or not they have grandfathered status.)

For the provisions now in effect, the only one that grandfathered plans are exempt from that is likely to have a material effect on costs is the preventive services requirement. According to the economic impact analysis that accompanied the regulation implementing this requirement, it’s projected to increase premiums in non-grandfathered employer plans by about 1 percent.

Grandfathering may have significant symbolic value. Advocates of the health reform law point to it as helping people keep coverage they had pre-reform, while opponents argue that the loss of grandfathered status could lead to higher costs. As a practical matter, the effects throughout the insurance market are likely to be quite modest in either case. And, where employers make changes that result in a plan no longer being grandfathered – for example, raising deductibles or employee premium contributions – those changes are probably going to be more consequential for workers and their families than whether or not the plan is grandfathered.

—Larry Levitt