What are Grandfathered Plans under Obamacare?

A grandfathered plan is a health plan that was in effect before March 23, 2010 (the day when Obamacare became law). There may be several reasons why you may want to keep your old plan, such as (a) you may not need more benefits, (b) your current plan provides more benefits, or (c) you want to avoid the cost increase. Groups and Individual members may continue to keep their grandfathered plans and be exempt from some (but not all!) Obamacare rules as long as they have limited their changes to the old plan.

What Obamacare rules do apply to grandfathered plans?

The following rules are applied to grandfathered plans:

  • prohibition of lifetime limits
  • restriction of annual limits (in group coverage)
  • prohibition of rescissions
  • coverage for dependents until age 26

The following rules are NOT applied to grandfathered plans:

  • restriction of annual limits (in individual coverage)
  • preventive health benefits with no-cost sharing
  • stronger internal and external appeals processes
  • letting patients choose their primary care doctor
  • no prior approval or higher out-of-network costs for ER use

See Obamacare Benefits and Protections for the list of rules and regulations.

Can a grandfathered plan lose its status?

In order not to lose the grandfathered plan status, the client must continue to keep the plan and its benefits essentially the same. Grandfathered status will be lost if there are significant reductions in benefits or increases in out-of-pocket spending, such as deductibles or copays.

The following changes can be made without impact on grandfathered status:

  • Changes in premiums on a policy or plan
  • Changes required to comply with federal or state law
  • Changes to increase benefits or voluntarily compliance with provisions of health care reform law
  • Changes to a provider network
  • Changes to a prescription drug formulary
  • Changes to accommodate mergers and acquisitions (as long as the merger or acquisition is not done solely to allow a group to move from one grandfathered plan to another when the plan change would reduce benefits or increase cost sharing in excess of that allowed by the regulations)
  • Change from one insurer to another

The following changes would cause a loss of grandfathered status:

  • Elimination of all (or substantially all) benefits to diagnose or treat a particular condition.
  • Increase in coinsurance above the level at which it was set on March 23, 2010.
  • Increase in fixed-amount cost-sharing requirements other than copayments, such as a deductible or out-of-pocket limit, by a total percentage (measured from March 23, 2010) that is more than the sum of medical inflation plus 15%.
  • Increase in copayments above the level in effect on March 23, 2010 by an amount that exceeds the greater of (a) the sum of medical inflation plus 15% or (b) $5 increase by medical inflation.
  • Reduction of the employer contribution rate to premiums
  • Change in annual or lifetime limits on the dollar value of covered benefits
  • The issuer or plan sponsor does not disclose to participants and beneficiaries that the plan or coverage is a grandfathered health plan.

The Department of Health and Human Services (HHS) estimates that by 2013, about 51% of all employer-based plans and 67% of individual plans will lose their grandfather status.

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