How a Grandfathered Health Plan Loses Its Status

A grandfathered health plan enjoys certain protections under the Affordable Care Act, and it can help employers and individuals preserve benefits without meeting all ACA requirements. However, this status is not permanent. When a plan makes specific changes or fails to meet certain criteria, it can lose its grandfathered designation. Understanding the triggers and consequences helps plan sponsors and enrollees anticipate changes in coverage, cost sharing, and protections.

What Is A Grandfathered Health Plan

A grandfathered health plan is one that existed on March 23, 2010 and has not made certain changes that would cause it to lose that status. Grandfathered plans are exempt from some ACA requirements, such as free preventive services or the elimination of lifetime limits, though they must still provide essential health benefits and non-discrimination protections. The designation can affect employer reporting, annual cost-sharing limits, and how consumer protections apply to the plan.

How The Grandfathered Status Is Determined

The U.S. Department of Labor and the Internal Revenue Service monitor grandfathered status. A plan retains its grandfathered status if it does not undergo prohibited changes. The critical test is whether a change would increase costs or reduce protections materially compared with the 2010 baseline. Carriers and employers must review plan documents and ensure updates do not cross the threshold that would disqualify the plan.

Triggers That Can Cause Loss Of Grandfathered Status

Several specific actions can cause a grandfathered plan to lose its status. The most common triggers include:

• Increasing Cost Sharing Beyond Baseline: If a plan increases the employee’s or dependents’ cost sharing beyond what was allowed in 2010, it can lose grandfathered status.
• Eliminating Existing Benefits: Removing or significantly diminishing benefits that were part of the plan on the grandfathering date can trigger status loss.
• Changing Employer Premium Sharing: Substantial changes to how much the employer pays toward premiums can affect grandfathered status.
• Reducing Flexible Spending Account (FSA) Contributions: Modifying FSA rules in a way that reduces participant value may impact status, depending on the change’s effect on the baseline.
• Adding or Increasing Annual or Lifetime Limits: Reintroducing or raising dollar limits on essential benefits can influence status.
• Material Changes To Plan Design: Broad changes to plan design that reduce protections or increase patient responsibility can jeopardize grandfathered status.

What It Means When Status Is Lost

Losing grandfathered status shifts a plan toward full ACA compliance, with several notable changes for beneficiaries. Some protections become uniform with non-grandfathered plans, including enhanced preventive services and more standardized annual limits. Employers may incur higher costs due to mandated annual out-of-pocket maximums, essential health benefit coverage, and the elimination of certain waivers. For enrollees, it often means less flexibility in plan features that were previously exempt from specific ACA rules.

Examples Of Status Changes And Their Effects

Real-world examples illustrate how status changes impact coverage and costs:

• Preventive Services: A grandfathered plan that loses status must cover recommended preventive services without cost sharing, aligning with ACA requirements.
• Cost Sharing: After status loss, plan members may face higher deductibles, copayments, or coinsurance for services that were previously exempt from out-of-pocket costs.
• Lifetime And Annual Limits: The removal or alteration of existing limits can standardize protections across plans, reducing variability in how much a member pays over time.
• Essential Health Benefits: Some plan designs may need to broaden coverage to include all ten essential health benefits, potentially expanding coverage offerings.

Impact On Benefits And Protections

When a plan becomes non-grandfathered, some consumer protections tighten while others may remain. Notable changes include:

• Elimination Of Some Waivers: Waivers that allowed cost sharing or benefit flexibility may no longer apply.
• Medical Policy Changes: Coverage for certain services could become more uniform with ACA standards, affecting coverage for specialist referrals or certain prescription drugs.
• Notifications And Disclosures: Employers must inform participants about the loss of grandfathered status and what it means for future coverage and costs.
• Compliance Burden: Plans may have to adjust to more comprehensive ACA requirements, including rating rules and annual dollar limits on protections.

How To Verify If A Plan Is Grandfathered

Verification steps help enrollees understand current protections:

• Check Plan Documentation: Review the plan’s Summary of Benefits and Coverage (SBC) and any grandparenting notices provided by the employer or insurer.
• Look For Grandfathered Status On The Website: Some plans display a grandfathered status indicator or statement of grandfathering.
• Ask The HR Or Plan Administrator: Direct inquiries can confirm whether changes have occurred that would affect grandfathered status.
• Review Annual Notices: Employers must provide notices about any status changes or disqualification events.
• Consult The Plan Summary: The SBC often includes language about grandfathered status and its implications for coverage.

Strategies For Employers And Plan Sponsors

To manage grandfathered status effectively, plan sponsors can:

• Monitor Material Changes: Establish a governance process to evaluate proposed changes against the 2010 baseline.
• Communicate Early: Provide proactive notices about potential status changes and their impact on costs and benefits.
• Balance Cost And Protections: Weigh the cost savings of maintaining grandfathered status against the value of aligning with ACA protections.
• Document Decisions: Keep thorough records of all changes and the rationale for maintaining or losing grandfathered status.

What Enrollees Should Do If Status Changes

Enrollees can take several practical steps if a plan loses its grandfathered status:

• Review New Benefits And Costs: Compare the non-grandfathered plan features with prior protections to understand changes in out-of-pocket costs and coverage.
• Ask For Transitional Assistance: Some employers may offer enhanced subsidies or plan options to ease transition.
• Explore Other Plans: If the new terms are unfavorable, compare other employer options or marketplace plans for better value.
• Document Medical Needs: Keep detailed records of ongoing treatments to ensure coverage is aligned with new rules.

Key Takeaways

Grandfathered status offers initial protections but is not permanent. Changes to cost sharing, benefits, or employer contributions can trigger loss of status. When status is lost, plans move toward full ACA compliance, which may bring broader protections but also higher costs in some cases. Enrollees should stay informed through plan documents and HR communications to anticipate and manage any changes effectively.

For anyone navigating a grandfathered plan, understanding these triggers and implications helps anticipate shifts in coverage and budgeting. Regular review of plan documents and proactive dialogue with administrators can ease transitions and protect essential health benefits.