What it means to have a 'grandfathered' health insurance plan

Marcus Pickett

The Patient Protection and Affordable Care Act, signed into law in March 2010, has ushered in a flood of new regulations for health insurance companies. But what about the health insurance plans that existed long before the law took effect? Do they have to play by the new rules?

In many cases, they do not. Plans that existed on or before March 23, 2010, are considered to be "grandfathered." In other words, they are immune to some of health care reform's provisions.

Rules grandfathered plans must follow

Even grandfathered plans have to comply with some of health care reform's central provisions, according to the U.S. Department of Health and Human Services (HHS). These include:

  • No caps on lifetime limits. An insurance company cannot cut off coverage once you've exceeded a certain dollar amount in benefits.
  • No revocation of coverage because of a serious illness or mistake on an insurance application. In the past, insurers could cut coverage by citing minor, unintentional errors on an application.
  • Required coverage of adult children. If a parent's plan offers dependent coverage, it must extend coverage to any of the parent's children (up to age 26).

Many Americans are covered through their employers' group health insurance coverage. Grandfathered group insurance plans must comply with the above requirements, as well as a few additional ones, according to HHS:

  • No denial of coverage for children because of pre-existing conditions.
  • No annual coverage limits.

In addition to these major rules, grandfathered plans will have to comply with some secondary consumer protection measures, according to a blog hosted by the health policy journal Health Affairs. These include stronger disclosure and transparency rules, limits on waiting periods and requirements that plans spend a certain amount of premiums on benefits.

Rules grandfathered plans don't have to follow

While the nation was debating health care reform, President Obama promised Americans that they could keep their current health insurance coverage if they wanted to. Grandfathering plans that existed before the law allows them to do so -- by permitting these plans to bypass certain aspects of health care reform.

According to Health Affairs, grandfathered plans do not have to:

  • Cover free preventive services. One of the stipulations of health care reform is that new health insurance plans must allow insured people to get things like vaccinations and screenings without having to come up with co-payments or deductibles. Grandfathered plans do not have to comply with this rule.
  • Provide a package of certain "essential health benefits." In 2014, most health insurance plans will be required to cover certain benefits, like ambulatory care, maternity care and mental health care. These essential benefits still are being defined, but grandfathered plans will not have to provide them (although many already do).
  • Comply with some of the reporting regulations and appeals processes for denied claims stipulated by the reform law.

Losing grandfathered status

Just because they do not have to comply fully with the health care reform law, grandfathered plans will not be able to cut benefits or raise costs dramatically. If they do, they will lose their grandfathered status. They can raise premiums to keep up with health care costs, make some changes to benefits, add employees to the plan and increase out-of-pocket costs within certain limits, according to HHS. But they'll lose their grandfathered status if they do any of the following:

  • Cut benefits significantly. For example, a grandfathered plan cannot simply decide to stop covering enrollees with certain diseases.
  • Raise coinsurance amounts. Coinsurance requires you to pay a certain amount (say, 20 percent) of your care after meeting your deductible. Grandfathered plans can't increase this amount.
  • Hike deductibles. Grandfathered plans can increase deductibles slightly, but no more than allowed by the Affordable Care Act (medical inflation plus 15 percentage points).

Employer-sponsored group health insurance plans will lose their grandfathered status if they significantly lower employer contributions or switch to a different insurance company.

Roughly 133 million Americans have coverage through large employers, according to HHS, and most of these plans are grandfathered. However, according to HHS, many of them are expected to lose that grandfathered status within the next few years. Those who work for smaller companies (which change insurers much more frequently than larger employers do) likely will find themselves with non-grandfathered plans sooner.