Grandfathered Plans

A “grandfathered” plan is a group or individual health plan in which a person was enrolled on March 23, 2010.

Grandfathered plans are exempt from certain mandates that can add to cost, such as:

  • Covering specified preventive services without cost-sharing.
  • Eliminating differences in coverage or premiums based on salary.
  • Certain limits on out-of-pocket costs for participants in 2014.

Grandfathered plans do incorporate three key protections of the ACA:

  • No lifetime limits.
  • Restricted annual limits through 2013; no annual limits effective January 1, 2014  (applies only to group grandfathered plans).
  • Extension of dependent coverage up to age 26.

Grandfathered plans are not subject to marketplace-related fee requirements or risk adjustments. However, all plans – regardless of grandfathered status – are subject to ACA provisions that are outside of the sections relating to insurance reform, such as revenue raisers (excise tax).  

Individuals and groups can keep a grandfathered plan for as long as it is offered, and there are no significant changes to the plan per the requirements of the Affordable Care Act (ACA). Here are all the things groups cannot do if they want to retain grandfathered plan status:

  • Cannot significantly cut or reduce benefits. For example, a plan cannot choose to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS and maintain grandfathered status.
  • Cannot raise coinsurance charges.  
  • Cannot significantly raise copayment charges.  
  • Cannot significantly raise deductibles. Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.

    In recent years, medical costs have risen an average of 4 to 5 percent, so this formula would allow deductibles to go up, for example, by 19 to 20 percent between 2010 and 2011, or by 23 to 25 percent between 2010 and 2012.
  • Cannot significantly lower employer contributions. Grandfathered plans cannot decrease the percentage of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15 percent to 25 percent).
  • Cannot add or tighten an annual limit on what the insurer pays. Plus, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit.
  • Cannot restructure the company for the purpose of moving employees to a GF plan. Employers cannot conduct a merger, acquisition or similar business restructuring, if the principal purpose of the action is to cover new individuals under the grandfathered plan.
  • Cannot move employees to a plan with lesser benefits. Cannot force employees to switch to another grandfathered plan that has fewer benefits or higher cost-sharing unless there is a bona fide employment-based reason for the change. Reducing employers’ costs is not a bona fide reason.