Keeping a Health Plan’s Grandfathered Status

How do I maintain my grandfathered status coverage plan?

Small businesses are allowed to keep their grandfathered plans as long as they don’t make any significant changes in coverage. If any of the following changes are made, the plan can no longer keep its grandfathered status—which means that all the new consumer protections introduced with reform will apply.

  • Increase medical costs to employees.
    An increase in cost-sharing above medical inflation (usually 4-5% annually) plus 15% (changes in premiums are not taken into account):

    • 1) Raises copayment charges more than $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15%
    • 2) Raises deductibles; compared with the deductible required as of March 23, 2010, grandfathered plans can only increase 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% so this formula would allow deductibles to go up, for example, by 19-20% between 2010 and 2011, or by 23-25% between 2010 and 2012.  For a family with a $1,000 annual deductible, this would mean if they had a hike of $190 or $200 from 2010 to 2011, their plan could then increase the deductible again by another $50 the following year.
    • 3) Increases coinsurance charges; for example, if coinsurance for a hospital stay is 20% (usually requires the patient to pay a fixed percentage of the charge), it cannot be increased to 25%
  • Reduces the employer contribution. Many small business owners pay a portion of their employee’s insurance premium and this is usually deducted from workers’ paychecks. If an employer decreases the percent of premiums it pays by more than 5%, the plan loses its grandfathered status.
  • Significantly cuts or reduces benefits. For example, if coverage for a specific condition, like diabetes, HIV/AIDS or cystic fibrosis is reduced or eliminated.
  • Adding or tightening an annual limit.As of 2010, annual limits are restricted and will be phased out. To keep grandfathered status, an annual dollar limit may not be made more restrictive; if the plan had no annual dollar limit on March 23, 2010, a new one can’t be added. There’s one exception: If there was a lifetime cap, it could become the annual dollar limit, so long as it is at least as high as the lifetime cap. Annual limits requirements are as follows:
    • Plan years: Sept. 23, 2010 to Sept. 23, 2011: not less than $750,000
    • 2011-2012, not less than $1.25 million
    • 2012-2013, not less than $2 million

The limits apply only to essential benefits, not yet defined.

If I lose grandfathered status, is there a way to remedy the loss?

If employers inadvertently trigger the loss of grandfathered status by violating one of the above rules they may request a delay and make any necessary changes to coverage in order to retain the status.

Do the new patient protections in the ACA apply to grandfathered plans?

All health plans – whether or not they are grandfathered plans – must provide certain benefits to their customers for plan years starting on or after Sept. 23, 2010 including:

  • No lifetime limits on coverage for all plans
  • No rescissions of coverage when people get sick and have previously made an unintentional mistake on their application
  • Extension of parents’ coverage to young adults under 26 years old

For most Americans who get their health insurance through employers, additional benefits will be offered, irrespective of whether their plan is grandfathered, including:

  • No coverage exclusions for children with pre-existing conditions
  • No “restricted” annual limits (e.g., annual dollar-amount limits on coverage below standards to be set in future regulations).

Collectively bargained plans

Plans that are maintained pursuant to a collective bargaining agreement that was in place before March 23, 2010 are considered grandfathered until the termination of the agreement, even if a change in insurers or a change that terminates the plan’s grandfathered status occurs.

Employee notification

Employees must be notified by either their employer or the insurer that their plan will be grandfathered; any material distributed about the plan must also include whether or not the plan has grandfathered status and therefore isn’t subject to new consumer protections. If you buy your own insurance, you should ask your insurer if your plan is grandfathered.

Beginning in 2014, insurers must apply to grandfathered plans the same reforms that apply to all other individual and small group plans like those mentioned above.