What "grandfathered" means and how it impacts customers and members
June 15, 2010
The Patient Protection and Affordable Care Act (PPACA) distinguishes between health plans that existed prior to the March 23, 2010 enactment date and those that come into existence afterward. Individual and group health plans already in existence prior to enactment are referred to as "grandfathered" plans, and new health plans (or plans which have been materially modified after March 23, 2010) are referred to as "non-grandfathered" plans. This distinction is important because grandfathered health plans are, in some cases, exempt from certain reform requirements.
The Department of Health and Human Services (HHS) recently released regulations that further define "grandfathered" and in what cases health plans can lose grandfathered status.
Please review the questions and answers below for an overview of the grandfathering regulation. More details, including specific examples, are available in a HealthReform.gov Fact Sheet.
What changes will result in a loss of grandfathered status?
- Changing insurance carriers for individuals
- Changing coinsurance amounts
Coinsurance is the percentage of a health care provider's charge for which the patient is financially responsible under the terms of the policy.
- Increase since March 23, 2010 to fixed-amount copayment where the increase is more than $5 plus the rate of medical inflation or is 15 percentage points higher than medical inflation (whichever is greater)
Copayments are flat-dollar amounts that patients must pay when visiting a health care provider.
Medical inflation is defined in this regulation as the medical care component of the Consumer Price Index for All Urban Consumers.
- Increases since March 23, 2010 to fixed-amount cost-sharing other than copayment (i.e. raising a deductible) that exceed the rate of medical inflation by 15 percentage points
- Decrease in the overall percentage of costs paid by the employer (i.e. the employer's share of premium costs) by more than 5 percent
- Elimination of benefits specific to certain health conditions (Additionally, elimination of a benefit for any necessary element to diagnose or treat a condition is considered for this purpose to be an elimination of benefits, resulting in loss of the plan grandfather status.)
- For plans with no annual or lifetime dollar limits, the addition of an annual or lifetime dollar limit
- For plans with lifetime dollar limits but no annual dollar limits, the addition of an annual dollar limit that is lower than the existing lifetime dollar limit
- For plans with annual dollar limits, a reduction in annual dollar limits
What changes can be made without losing grandfathered status?
- Changes to premiums
- Changes to comply with federal or state legal requirements
- Changes to voluntarily comply with provisions of PPACA
- Changing third-party administrators for plans that are self-insured who use third-party administrators to process claims
A plan is self-insured (or self-funded), when the employer assumes the financial risk for the health care benefit claims of its employees.
- Other changes that are not prohibited by the regulation
What must employers and health insurers do to maintain grandfathered status?
Group health plans and health insurers must maintain records documenting the terms of the plan in effect on March 23, 2010 and any other documents necessary to verify, explain or clarify its status as a grandfathered plan. Group health plans and health insurers must also include a statement in plan materials to participants, beneficiaries or primary subscribers, describing the benefits provided in the policy and explaining why they believe the policy is grandfathered as defined by PPACA. Contact information for questions and complaints must also be included. Model language for this statement is available in the HHS regulations.
What provisions apply to grandfathered plans?
Grandfathered individual and group health plans are exempt from many PPACA provisions. However, some major provisions they are required to comply with for plan years beginning on or after Sept 23, 2010 include:
- No pre-existing condition exclusions for individuals under age 19 (groups only, not applicable to grandfathered individual health coverage)
- No lifetime dollar limits on "essential benefits"
- No restrictive annual dollar limits on essential benefits (2014) (annual dollar limits of grandfathered individual plans are enforceable)
- No rescissions except for fraud or misrepresentation
- Extending coverage for dependents up to age 26 (Until 2014, grandfathered group plans are not required to cover dependents who are eligible for employer-sponsored health coverage elsewhere.)
A chart detailing reform provisions and whether or not they apply to grandfathered plans is available in the HHS regulations.
How does grandfathering apply to collectively bargained groups?
Collectively bargained plans are only grandfathered until the end of the last collectively bargained agreement relating to the coverage. This applies only to fully-insured collectively bargained plans and applies even if the group changes insurance carriers while in the current collective bargaining agreement (CBA) period. At the end of the current CBA period, the new benefits must be compared to the benefits in effect on March 23, 2010 to see if the group is still grandfathered. From this point forward, any change in insurance carrier will result in the loss of grandfathered status. CBA plans must comply with all PPACA provisions that apply to grandfathered plans with plan years beginning on or after Sept. 23, 2010.
How are new dependents and employees treated in grandfathered plans?
Dependents and new employees may be added to a grandfathered plan and be treated as a grandfathered enrollee.
How does grandfathering apply to employers providing multiple health benefit options?
Each total benefit plan has separate grandfathered status. For example, if an employer offers employees choices of three different insurance plans, a loss of grandfathered status for one plan due to benefit changes only applies to that plan and does not affect the other choices.
How many plans are expected to lose grandfathered status over the next few years?
HHS estimates that:
- 40 percent to 67 percent of individual policies will lose grandfathered status by 2011
- 34 percent to 64 percent of large employer group plans (100 or more employees) will lose their grandfathered status by 2013
- 49 percent to 80 percent of small employer group plans (3 to 99 employees) will lose their grandfathered status by 2013
A complete chart of estimates is available in the HHS regulations.
Under what circumstances can a group maintain grandfathered status after 2014?
Any existing group that requests to maintain its grandfather status, and has not made any material changes that impact its status, can remain grandfathered beyond 2014.
The information on this website is based on BCBSM's review of the national health care reform legislation and is not intended to impart legal advice. Interpretations of the reform legislation vary, and efforts will be made to present and update accurate information. This overview is intended as an educational tool only and does not replace a more rigorous review of the law's applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. Analysis is ongoing and additional guidance is also anticipated from the Department of Health and Human Services. Additionally, some reform regulations may differ for particular members enrolled in certain programs such as the Federal Employee Program, and those members are encouraged to consult with their benefit administrators for specific details.