- Grandfathered plans were already in effect when the ACA was enacted on March 23, 2010.
- Grandfathered plans must follow some ACA rules but are exempt from others.
- Grandfathered plans can remain in force indefinitely as long as they don’t make significant changes.
- The Trump administration has finalized rule changes that will allow grandfathered plans to make more significant cost-sharing increases.
Grandfathered plans are health insurance plans that were already in effect as of March 23, 2010, when the Affordable Care Act was signed into law. In the individual market, they are plans that already covered the policyholder as of that date, and in the employer-sponsored market, they are plans that the employer had already implemented as of that date, and has continuously offered ever since, with at least one covered employee at all times.
Employees can join an employer’s existing grandfathered plan, but grandfathered plans have not been available for purchase (in the individual market, or by an employer) since the ACA was signed into law.
Grandfathered plans don’t have to comply with several significant ACA provisions. They do not have to cover preventive care with no cost-sharing, and they do not have to cap out-of-pocket costs. Grandfathered plans cannot, however, impose lifetime benefit limits on any essential health benefits that they cover (they aren’t required to cover essential health benefits though), must allow insureds to keep their children on the plan until age 26, and must abide by the ACA’s medical loss ratio rules.
Grandfathered plans are allowed to remain in force indefinitely — neither the state nor the federal government can force them to end. But insurers can make the decision to terminate grandfathered plans, and some have done so, including Humana, Blue Shield of California, and Blue Cross Blue Shield of North Carolina. As time goes by and the pool of people on grandfathered plans shrinks and ages (since nobody new can join grandfathered plans), insurers will be less likely to keep those plans in force.
The ACA specifically provides for the indefinite continuation of grandfathered plans, which is what President Obama was talking about when he said people would be able to keep their pre-ACA plans if they wanted to. Note that grandfathered plans are not the same as grandmothered plans.
What rule changes has the Trump administration made for grandfathered group plans?
In order to retain grandfathered status, a plan cannot have been substantially changed since the ACA was enacted, and there are limits on how much cost-sharing can increase and how benefits can change.
In February 2019, the Departments of the Treasury, Labor, and Health & Human Services published a request for comments on whether there should be rule changes to make it easier for employer-sponsored grandfathered plans to retain their grandfathered status going forward. As of 2020, about 14 percent of workers with employer-sponsored health plans were enrolled in grandfathered plans. (The request for comments did not pertain to individual market grandfathered health plans, and the subsequent rule changes do not either.)
So it was not surprising when the Trump administration published a proposed rule in July 2020 that included two modifications that would make it easier for employer-sponsored grandfathered plans to make changes to their coverage and still retain their grandfathered status. The administration accepted public comments on the proposed rule changes through mid-August, but received just 13 comments. The proposed rule was finalized in December 2020 with very few modifications, although the effective date has been pushed out to June 15, 2021:
- The first modification will allow HSA-qualified grandfathered group plans to increase cost-sharing as necessary in order to conform to IRS requirements for HDHPs. The IRS sets the rules for HDHPs, and they are indexed annually. As of 2020, there has never been a year when the IRS-mandated increase in minimum deductibles for HDHPs exceeded the allowable cost-sharing increases for grandfathered plans, but the new rule change will ensure that grandfathered employer-sponsored HDHPs can continue to be HSA-qualified even if that situation were to arise. The plans will have explicit permission to raise deductibles as necessary in order to conform to IRS rules (so that enrollees could continue to contribute to their HSAs) and still retain their grandfathered status, even if the necessary deductible increase were to exceed the normal requirements for grandfathered plans.
- The second modification will allow employer-sponsored grandfathered plans to increase cost-sharing (copays, deductibles, out-of-pocket maximum) more than they’re currently allowed, without losing their grandfathered status. The existing rules allow grandfathered plans to increase cost-sharing by an amount equal to medical inflation since March 2010 plus up to 15 percentage points. The newly finalized rule will allow employer-sponsored grandfathered plans the option to base cost-sharing increases on how much the premium adjustment percentage increases each year, plus 15 percentage points. The premium adjustment percentage is updated by HHS each year, and they changed the formula in 2020 to incorporate the change in individual market premiums. This resulted in a premium adjustment percentage that’s larger than it would otherwise have been. Under the newly finalized rule, cost-sharing amounts on grandfathered group plans could be about 3 percentage points higher by 2026 than they would otherwise have been.
The rule changes will apply to grandfathered plans in the individual market.