What is a Grandfathered Plan?

This week’s question: 

What is a “grandfathered plan” and what does that mean?  What changes can plans make and still retain grandfathered status?

PPACA provides some exceptions for “grandfathered plans,” which are defined as individual or group health plans (insured or self-funded) in which an individual was enrolled on the date of enactment (March 23, 2010). 

The statute allows family members and new employees to be enrolled after date of enactment, without affecting the plan’s grandfathered status, but is silent on whether other changes may be made to a grandfathered plan.  Earlier health care reform bills explicitly prohibited changes for grandfathered plans, which suggests that Congress intended plans to be able to make at least some changes and still be grandfathered.

However, there are a number of questions as to what types of changes a plan can make and still be grandfathered (regulators informally have indicated they may issue guidance on this issue early this summer).  We would expect that plans at least should be able to make changes to conform with PPACA and other applicable law, such as the new mental health parity rules, and not risk grandfathered status.  Plans also may be able to make minor changes, such as routine clarifications and service provider transfers.  But we expect that regulators may place some limits on changes a plan will be able to make and still be grandfathered.

What “Grandfathered” Means

If a plan is grandfathered, they will be exempt from some – but not all – of the new rules under PPACA. 

Generally, grandfathered plans do not have to comply with most of the new provisions under the insurance market reform rules, including the requirement to offer preventive health without cost sharing, establish external review procedures, offer choice of primary care providers, cover clinical trials, rating restrictions, and guaranteed access/renewability rules. 

However, even grandfathered plans are subject to some rules, including restrictions on annual and lifetime limits, pre-existing condition exclusion requirements, and the requirement to cover adult children to age 26.  In addition, the grandfather rules do not apply to the new tax rules (including changes for FSAs), the employer excise tax, and the employer mandates.  So, grandfathered plans still will need to review each provision to see how the new rules may impact them.

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You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html 

Contributors:

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, DC.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm’s Policy and Legislation group. He counsels plan sponsors, insurers and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently-enacted health reform legislation.

PLEASE NOTE:  This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.