Eight Things You Need to Know About Grandfathered Health Plans

Grandfathered plans still exist, but they're rapidly disappearing

Grandfathered health plans still exist, but are rapidly disappearing
Grandfathered health plans still exist. But as time goes by, maintaining them becomes less attractive to insureds and carriers. Portra Images/Creative RM/Getty Images

When the Affordable Care Act was signed into law on March 23, 2010, it included a provision to allow health plans that were already in force on that date to remain mostly unchanged indefinitely. These health plans are grandfathered, and they do not have to comply with most of the ACA's regulations.

They're also the basis of President Obama's promise that if you liked your health plan, you could keep it.

Although it's clear that was a significant over-promise, it's also important to understand that there aren't many of us who would actually choose to keep the same plan, unchanged, indefinitely. No mater how much we liked the $130 deductible and $5 copays we had in 1990, very few of us could afford the premiums on that same policy today, even if it were still available.

Over time, grandfathered plans become less attractive to maintain, both for insureds and for health insurance carriers. The insured population in the plans continues to age, the number of insureds declines with time, and the plan design itself becomes outdated. There are far fewer grandfathered plans now than there were five years ago, but they do still exist. Here's what you need to know about them:

1. Grandfathered health plans are not the same thing as grandmothered health plans

2. Nobody has been able to purchase a grandfathered plan since early 2010.

These plans had to already be in force as of Mach 23, 2010. For individual coverage, the insured can still add new dependents to an existing plan. And for employer-sponsored plans, new employees can join the plan as long as the employer has had the plan continuously in force since March 23, 2010 or earlier.

But no individual or employer has been able to purchase a grandfathered plan for almost six years now.

3. If significant changes are made to the plan - by the insurance company or the employer - the plan can lose its grandfathered status. These include:

  • Significantly increasing copays, deductibles, coinsurance percentage, or out-of-pocket maximums.
  • Eliminating or reducing benefits, or moving employees to a plan with lesser benefits.
  • A 5% or greater reduction in the employer's contribution to employees' premiums.
  • A plan merger or aquisition for the purpose of adding new members to a grandfathered plan.

Plans can increase their premiums without losing grandfathered status, and can also choose to increase benefits - but not significantly decrease them - and still retain grandfathered status. In addition, in order to maintain grandfathered status, the plan must inform members that the coverage is grandfathered.

4. Grandfathered plans don't have to comply with most of the ACA's regulations. They don't have to cover the law's essential health benefits, including preventive care with no cost-sharing (so for example, grandfathered plans do not have to cover contraceptives for free, the way non-grandfathered plans do).

They don't have to include embedded individual out-of-pocket maximums on family plans.

Plans that excluded pre-existing conditions can maintain those exclusions, and none of the ACA's subsidies - for premiums or cost-sharing - are available to offset the cost of coverage or care on a grandfathered plan.

5. Grandfathered plans do have to comply with some of the ACA's requirements:

  • All grandfathered plans had to end lifetime benefit maximums on essential health benefits. To be clear, grandfathered plans are not required to provide coverage for the ACA's essential health benefits. But to the extent that they do, they cannot impose lifetime benefit maximums.
  • Grandfathered group plans had to end annual benefit maximums on essential health benefits, but grandfathered individual plans did not.
  • All grandfathered plans have to allow young adult children to remain on a parent's plan until age 26.
  • All grandfathered plans have to abide by the ACA's medical loss ratio, spending at least 80% of premiums on medical care (85% for large group plans).

6. Premiums on grandfathered plans may rise sharply. Grandfathered plans are "closed blocks" in that no new policy-holders can be added to the risk pool. The existing population continues to age each year, and in the individual market - where medical underwriting was the norm in nearly every state when grandfathered plans were sold - underwriting is "wearing off" as time goes by (people who were perfectly healthy when they purchased their coverage a decade ago may now have health conditions that have arisen since then).

Although keeping a grandfathered plan may have made economical sense in the early years of ACA implementation - particularly for someone who didn't qualify for premium subsidies in the exchange - that may not continue to be the case long-term.

7. Your employer or your health insurance company can decide to terminate a grandfathered plan. The plans are allowed to remain in force indefinitely, but that doesn't mean they have to, or even that they're likely to. Blue Cross Blue Shield of Tennessee terminated individual grandfathered plans at the end of 2015, and Humana has made a business decision to terminate grandfathered individual plans in 11 states this year.

Other insurers are likely to follow suit in the coming years as the pool of insureds on grandfathered plans shrinks to the point that it no longer makes sense to continue to serve the grandfathered market separately from the ACA-compliant market.

If your grandfathered health plan is terminated, you'll get at least 90 days notice, and you'll have access to a special enrollment period that will allow you to enroll in an ACA-compliant health plan.

8. Every year, there are fewer grandfathered plans remaining. By 2015, only 25% of workers with employer-sponsored insurance were covered under a grandfathered plan.

And by 2014, only about a third of the individual health insurance market was comprised of non-ACA-compliant plans, including both grandmothered and grandfathered plans. These are all closed risk pools (ie, nobody can buy new grandmothered or grandfathered plans), so the number of people with these plans decreases every year, since people can leave the plans, but nobody can join them.

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