Grandfathered Health Plan Implications and Considerations

The Affordable Care Act (“ACA”) introduced comprehensive reforms to the U.S. healthcare system. One notable provision is the concept of “grandfathered” health plans, which allows certain existing health plans to continue without adhering to all ACA requirements. For those with a grandfathered plan, it is important to understand the criteria for maintaining grandfathered status, and the implications for both employers and employees.

Defining Grandfathered Health Plans

A grandfathered health plan is one that was in existence on March 23, 2010, and has not undergone specific prohibited changes that would cause it to lose this status. These plans can include both individual health insurance policies and employer-sponsored group health plans. The primary intent behind allowing certain plans to be grandfathered was to enable individuals and businesses to maintain their existing coverage if they were satisfied with it, even as new ACA provisions came into effect. ​

Benefits of Maintaining Grandfathered Status

Grandfathered plans are exempt from several ACA requirements, which can influence an employer’s decision to retain this status:

1. Preventive Services Without Cost Sharing: Non-grandfathered plans must cover preventive services, such as immunizations and screenings, without charging copayments, coinsurance, or deductibles. Grandfathered plans are not mandated to provide these services without cost sharing. ​
2. Patient Protections: Requirements like allowing enrollees to designate any participating primary care provider, including pediatricians and OB/GYNs, without referrals, apply to non-grandfathered plans. Grandfathered plans are exempt from these patient protection mandates.
3. Appeals and External Review Processes: Non-grandfathered plans must implement comprehensive internal appeals and external review processes for coverage determinations and claims. Grandfathered plans are not obligated to adhere to these enhanced appeals procedures.
4. Coverage for Essential Health Benefits: Particularly relevant for fully-insured small group plans, non-grandfathered plans are required to cover a set of essential health benefits defined by the ACA. Grandfathered plans in this market segment are not subject to this requirement. ​

The Department of Labor (“DOL”) maintains an illustrative summary of the ACA healthcare reform provision in comparison to application to grandfathered health plans.

Criteria for Maintaining Grandfathered Status

To retain grandfathered status, a health plan must avoid making specific changes that are considered significant under ACA regulations:​

1. Elimination of Benefits: Removing all or substantially all benefits to diagnose or treat a particular condition will result in the loss of grandfathered status.
2. Increase in Percentage Cost-Sharing: Raising coinsurance percentages beyond the levels in place on March 23, 2010, is prohibited.
3. Increase in Fixed-Amount Cost-Sharing: Increasing deductibles or out-of-pocket maximums by an amount that exceeds medical inflation plus 15 percentage points will cause a plan to lose its grandfathered status.
4. Increase in Copayments: Raising copayments by more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points is not allowed.
5. Decrease in Employer Contributions: Reducing the employer’s contribution rate towards the cost of coverage by more than 5 percentage points compared to the contribution rate on March 23, 2010, will result in the loss of grandfathered status.
6. Imposition of Annual Limits: Introducing or reducing annual limits on the dollar value of benefits to levels below those in place on March 23, 2010, is prohibited.

Implications of Losing Grandfathered Status

If a health plan loses its grandfathered status, it must comply with all ACA provisions applicable to non-grandfathered plans. This transition can have several implications:

1. Increased Compliance Requirements: The plan will need to implement preventive services without cost sharing, adhere to patient protection mandates, and establish comprehensive appeals processes.
2. Potential Cost Implications: Complying with additional ACA requirements may lead to increased costs for employers, which could be passed on to employees in the form of higher premiums or cost-sharing obligations.
3. Enhanced Benefits for Enrollees: Employees may gain access to a broader range of benefits and protections, improving their overall healthcare experience.

Notice Requirements for Grandfathered Health Plans

Employers that choose to maintain a grandfathered health plan must comply with specific notice requirements to inform plan participants about the plan’s status and what it means for their coverage. These notices help employees understand that their plan is not subject to certain ACA protections and outline the implications of being enrolled in a grandfathered plan.

Required Disclosure Statement

Under ACA regulations, a grandfathered health plan must include a disclosure statement in any plan materials provided to participants, such as summary plan descriptions (SPDs) and benefits communications. This statement must clearly indicate:

• That the plan is grandfathered under the ACA.
• That grandfathered plans are exempt from certain ACA requirements.
• Contact information for participants to reach their plan administrator or the DOL for further questions.

The model notice language provided by federal agencies includes the following wording:

“This group health plan believes this plan is a ‘grandfathered health plan’ under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. As a grandfathered health plan, this plan may not include certain consumer protections of the Affordable Care Act that apply to other plans, such as providing preventive health services without any cost-sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, such as the elimination of lifetime limits on benefits.”

This notice must be prominently displayed in plan documents and communicated to all participants in a clear and accessible manner.

When Must the Notice Be Provided?

The grandfathered status notice should be included in:

• Summary Plan Descriptions (“SPDs”) or other plan benefit materials distributed to employees.
• Open Enrollment Materials when employees are selecting their health benefits.
• New Hire Packets for employees enrolling in the plan for the first time.
• Annual Renewal Notices if the plan continues to maintain its grandfathered status.

Failure to provide the required notice can result in compliance issues and potential penalties from regulatory agencies.

Current Trends and Considerations

Over time, many plans have relinquished their grandfathered status, primarily due to the restrictive nature of maintaining it and the diminishing number of exemptions from ACA requirements. As of 2019, the benefits of retaining grandfathered status were limited, especially outside of fully insured plans in the small group market.

Employers considering whether to maintain grandfathered status should evaluate the following factors:

1. Cost-Benefit Analysis: Assess whether the administrative and financial efforts to maintain grandfathered status outweigh the benefits of being exempt from certain ACA provisions.
2. Employee Needs and Preferences: Determine if employees value the additional protections and benefits provided by non-grandfathered plans, which could enhance employee satisfaction and retention.
3. Regulatory Landscape: Stay informed about legislative and regulatory changes that could impact the advantages of maintaining grandfathered status.

Conclusion

Grandfathered health plans under the ACA offer a means for certain existing plans to continue without adopting all new ACA requirements. While this status provides exemptions from specific provisions, the stringent criteria for maintaining it and the evolving healthcare landscape have led many employers to transition to fully ACA-compliant plans over time.

For employers, the decision to maintain or forgo grandfathered status should be based on a thorough cost-benefit analysis, consideration of employee needs, and an understanding of regulatory requirements. While grandfathered plans may offer cost control and administrative simplicity, they may not provide the same level of coverage, preventive services, or consumer protections as non-grandfathered plans.

Ultimately, as healthcare costs and regulations evolve, employers and plan sponsors must continuously assess whether maintaining a grandfathered plan aligns with their long-term benefits strategy. Employees should also be aware of their plan’s status and how it impacts their coverage to make informed decisions about their healthcare.