ACA-compliant coverage

ACA-compliant refers to a major medical health insurance policy that conforms to the regulations set forth in the Affordable Care Act (ACA; also known as Obamacare).

ACA-compliant individual and small-group policies must include coverage for the ten essential health benefits with no annual or lifetime coverage maximums.¹ These individual and small-group plans are guaranteed issue during open enrollment, so pre-existing conditions are not a factor in eligibility. ACA-compliant policies cannot be rescinded except in cases of fraud or intentional misrepresentation,² and carriers must comply with the medical loss ratio (MLR) rules that require a carrier to spend at least 80% of premiums (85% for large-group plans) on medical expenses.

Individual and small-group health insurance

All individual and small-group health insurance policies with effective dates of January 1, 2014 or later are required to have the features listed above to be ACA-compliant, regardless of whether they are sold on or off-exchange. This has been the case since the ACA went into effect on January 1, 2014.

(Employees may still enroll in their employer’s existing small-group plans that were in effect before 2014, but if a small business purchases a new small-group plan from a health insurance company, it will be ACA-compliant, as non-ACA-compliant plans are no longer sold in the small-group market. Note that small employers are not required to offer coverage at all, and they also have the option to self-insure, in which case the ACA’s small-group rules would not be applicable.)

Large-group health insurance

The ACA’s requirements for large-group plans (51 or more employees in most states, but 101 or more employees in California, Colorado, New York, and Vermont) and self-insured plans are different, so ACA compliance is measured in other ways for those plans.

For example, while individual and small-group health plans are required to cover the ACA’s essential health benefits, that’s not the case for large-group plans. Large-group plans also don’t have to comply with the ACA’s 3:1 age-rating ratio, or 1.5:1 tobacco rating rule, as those are specific to individual and small-group plans. But large-group plans do have to provide minimum value or else the employer faces a potential financial penalty. And as long as the large-group plan is not grandfathered (meaning it took effect after the ACA was signed into law on March 23, 2010), it also has to cover recommended preventive care without cost-sharing, and for any essential health benefits that the plan does cover, it has to cap out-of-pocket costs for in-network care at no more than the level set each year by the federal government.

Grandfathered plans

Plans that were in force prior to 2014 have varying degrees of exemptions from the ACA’s rules. To be grandfathered, a plan must have already been in effect as of March 23, 2010, and while they are required to comply with some of the ACA’s regulations, they are exempt from many others. For example, grandfathered plans do not have to cover the cost of preventive care, do not have to cover pre-existing conditions, do not have to cover essential health benefits, and can still impose annual benefit limits. But they do, for example, have to allow young adults to stay on a parent’s plan until age 26, and comply with the ACA’s medical loss ratio rules.³

Grandfathered plans may continue to be renewed indefinitely as long as they are still offered by the carrier and the carrier does not make any substantial changes to the plan. But they are dwindling in number due to the normal turnover of insurance products.⁴ No individual or business has been able to purchase a new grandfathered plan since March 23, 2010, although eligible employees may still enroll in existing grandfathered plans.

Grandfathered plans count as minimum essential coverage. So if and when a grandfathered plan is terminated, the termination will trigger a special enrollment period during which a new plan can be purchased.

Grandmothered plans

Individual and small-group policies with effective dates prior to 2014, but after March 23, 2010, are not grandfathered, but many are still in existence and they do not have to be fully ACA-compliant.

Originally, the ACA required these plans to terminate at their renewal date in 2014. At that point, the enrollee or business would have had an opportunity to transition to an ACA-compliant plan if they wanted to do so. But the Obama Administration announced in March 2014 that they could be renewed for another year instead, without becoming fully compliant with the ACA’s regulations.⁵ Ultimately, that extension has been renewed several times and these plans are now eligible to be renewed until further notice from the federal government, at the discretion of each state and carrier issuing the policy.

These plans are called “grandmothered” or “transitional” policies. They must abide by some ACA regulations, such as the ban on lifetime and annual limits for essential health benefits, but the coverage they offer can remain generally the same as it was prior to 2014. The majority of the states have opted to go along with the federal guidance that allows grandmothered plans to renew. But the number of people enrolled in these plans has been steadily decreasing over time, because these plans cannot be purchased by new enrollees.

Grandmothered plans also count as minimum essential coverage.

Plans that aren’t regulated by the ACA

In addition to grandfathered plans and grandmothered plans (both of which are major medical health insurance), the ACA specifically exempts some other types of coverage from its rules.

These plans are not major medical health insurance and include short-term medical insurance (also referred to as temporary health insurance), accident supplements, fixed-dollar indemnity plans, dental/vision plans, critical illness insurance policies, travel insurance, and medical discount plans. These plans are not ACA-compliant coverage, and they continue to operate under state regulations much the way they did prior to the ACA.

They also do not fulfill the shared responsibility provision (mandate requiring people to have health insurance), since they are not minimum essential coverage. Although there’s no longer a federal penalty for not having minimum essential coverage, there is a state-imposed penalty if you’re in DC, New Jersey, California, Massachusetts, or Rhode Island. Short-term health insurance is not available in any of those states, but other types of non-ACA-compliant coverage, such as fixed indemnity plans, do tend to be available, and will not count as fulfilling a state-based individual mandate.⁶, ⁷, ⁸, ⁹, ¹⁰

It’s also important to note that some special enrollment periods for ACA-compliant individual/family coverage are only available if the applicant had minimum essential coverage for at least one of the 60 days before a qualifying life event — such as moving to a new area or getting married. That requirement cannot be fulfilled with a short-term health plan or an excepted benefit plan, since they aren’t considered minimum essential coverage.