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Obamacare: What is a Grandfathered Plan?

Ever since the Patient Protection and Affordable Care Act (PPACA) was voted into law on March 23, 2010, the world of group health plans was divided into two – those that were adopted after the law was passed and “grandfathered” plans, which are largely exempt from the requirements of the law.

Ever since the Patient Protection and Affordable Care Act (PPACA) was voted into law on March 23, 2010, the world of group health plans was divided into two – those that were adopted after the law was passed and "grandfathered" plans, which are largely exempt from the requirements of the law.


Definition of a Gradfathered Plan

The Affordable Care Act plan was designed to increase the total number of insured individuals, thereby bringing the cost of healthcare down for everyone. The fact that inexpensive health insurance is available for millions of uninsured citizens should not cause a business to drop employees from their group plans, nor should it prevent them from hiring.

According to the PPACA, a grandfathered plan is defined as any employer-sponsored group healthcare plan that was already in existence as of March 23, 2010. The significance of being "grandfathered" in the system is that these plans are exempt from many of the newer requirements outlined in the Affordable Care Act. For example, the law now requires that plans do not discriminate in favor of highly compensated employees as to whether they are eligible for plan benefits. Thus, these plans may still be divided into tiered benefits packages that apply to different categories of employees.

What are the benefits of a Grandfathered Plan?

Grandfathered health plans also avoid 13 other provisions of the Affordable Care Act, as outlined below.

New Government Reports – Since Obamacare became law, employers are required to provide the State Insurance Commissioner and the Secretary of Health and Human Services specific information about enrollment, claims and payment policies for their health plans.

Claims Review – The PPACA has expanded the internal claims review process, which would apply to any new plans that went into place after March 23, 2010.

Annual Reports – Newer plans must provide the Secretary of Health and Human Services with an annual report that details how the plan will improve health outcomes.

First Dollar Coverage – All plans must provide first-dollar coverage for any preventive care services. These include an annual check-up and blood test. For women, it also includes a mammogram after age 35 and an annual gynecological exam.

Premium Rules – One provision of Obamacare, known as the "Fair Health Insurance Premiums," requires that insurance premiums can only vary by an individual's age at a maximum 3:1 ratio and for tobacco usage at a 1.5:1 ratio. Rates may also change based on geographic rating area and the type of coverage (family or individual.)

Emergency Services — Effective on March 23, 2010, all new insurance policies will cover emergency services without prior authorization.

Guaranteed Access — Perhaps one of the most groundbreaking changes to healthcare access, the "Guaranteed Availability of Coverage" provision obligates insurance providers to accept every individual or employer who applies for insurance.

Any Willing Provider – This provision stipulates that plans may not discriminate against any willing provider of medical services if they operate within the scope of their practice.

Health Status — this provision prohibits plans from discriminating against certain participants based on the status of their health.

Essential Benefits — Effective with the enactment of Obamacare, new plans must provide "essential benefits" to all participants, as outlined and mandated by the law.

Clinical Trials — The PPACA also mandates that individuals who participate in approved clinical trials will also receive coverage from their insurance plan.

Preventive Care — In addition to ensuring that all health insurance plans include preventative care, Obamacare mandates that all preventive health services are covered 100% by the insurer without any cost sharing. How to Maintain "Grandfathered" Status

According to the Patient Protection and Affordable Care Act, a grandfathered plan:

  • May not significantly cut or reduce benefits
  • May not raise co-insurance charges
  • May not significantly increase co-payment charges
  • May not significantly raise deductibles
  • May not significantly decrease the employer contribution
  • May not tighten the annual limit of what the insurer will pay
  • May not change insurance providers


Nine Mandates of the PPACA That Do Apply to Grandfathered Plans

Regardless of their "grandfathered" status, plans that were already in effect as of September 23, 2010 must comply with the following Affordable Care Act mandates.

Children — Children under the age of 19 may not be excluded from coverage because of a pre-existing health condition.

Rescission — unless fraud or misrepresentation of material fact can be proven, no rescissions of coverage may occur for insured individuals.

Plan Limits — Healthcare plans may no longer place lifetime or restricted limits on healthcare coverage.

Young Adults — all group health plans must cover young adult children until they reach the age of 26. However, for grandfathered plans children are not eligible for this benefit until 2014 if they are also eligible for employer-provided healthcare.

Advance Notice – All health plans must provide participants with at least 60 days' notice of any changes to their benefits, plus the cost of a group health plan must be included in the W-2 for any group health plan participant.

Four-Page Summary — A document known as the "Uniform Explanation of Coverage," which cannot exceed 4 pages, must be prepared and distributed to all plan participants.

Exchanges — Starting in January 2014, all health plans must notify employees about the existence of healthcare exchanges and, if their employer picks up less than 60% of the premium costs for their existing group health plan. Employees must also be made aware of any tax credits and cost-sharing discounts if the employee were to purchase health coverage through an exchange.

Waiting Periods — As of January 1, 2014, group health plans will no longer be allowed to impose a waiting period that exceeds 90 days.

Retiree-Only Medical Plans – Those plans that cover retirees only are exempt from the PPACA's mandated extension of coverage to adult children up to age 26.

"Excepted" Plans – Certain benefits, such as vision only, dental only or flexible spending accounts are exempt from the operational and design changes of Obamacare.

Collective Bargaining Plans - Any collectively bargained health plan that was ratified prior to March 23, 2010 will enjoy many of the same exemptions as other grandfathered group health plans. One exception, however, is that "grandfathered" collective bargained plans may change insurance carriers during the term of the agreement without losing grandfathered status.

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